The Reserve Bank of India has decided to keep the repo rate unchanged at 6.5 per cent. The decision was taken at the fourth bi-monthly monetary policy committee meeting led by RBI Governor Urjit Patel on October 5, amidst market expectations of further tightening by the central bank.
Consequently, the reverse repo rate under the LAF remains at 6.25 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.
The six-member monetary policy committee (MPC) voted 5:1 in favour of keeping the benchmark repo rate unchanged. The policy stance has been changed from Neutral to 'calibrated tightening'. Calibrated tightening means rate will be maintained or hiked in this cycle.
- RBI Policy: MPC keeps repo rate unchanged at 6.50% , maintains status quo on rates.
- RBI to introduce framework for efficient benchmarks in financial market
Highlights of RBI Monetary Policy
- The following are the highlights of the fourth bi-monthly monetary statement for 2018-19:
- Repo Rate Unchanged at 6.5 %
- Reverse Repo Rate Remains at 6.25 %
- Marginal Standing Facility (MSF) at 6.75 %
- Bank Rate Kept at 6.75 %
- CRR at 4 %
- The policy stance has been changed to 'calibrated tightening' from Neutral. "The new 'calibrated tightening' stance means that there are no rate cuts from here on till the stance changes. Only rate hikes or status quo!"
*Projects retail inflation to rise to 3.8-4.5 percent in October-March
* Retains GDP growth estimate at 7.4 percent for current fiscal. RBI has retained the GDP growth projections for FY19 at 7.4 percent, citing risks to increase in investment activity as a result of higher crude oil prices and other input costs (that have the potential of lowering down the profit margins of the corporates). CARE Ratings expects GDP to grow by 7.5 percent in FY19.
* Global economic activity becoming uneven, outlook clouded by uncertainties
* Excise cut in petrol and diesel will moderate retail inflation
* Rise in oil prices may have a bearing on disposable incomes, dent profit margins of corporates
* Oil prices remain vulnerable to further upside pressures, especially if the response of oil-producing nations to supply disruptions from geopolitical tensions is not adequate, says MPC.
* Global, domestic financial conditions tightened, may dampen investment activity
* Exports outlook uncertain
* Fiscal slippage at the centre/state to have a bearing on the inflation outlook, besides heightening market volatility and crowding out private investment
* Inflation outlook needs a close vigil over the next few months, several upside risks persist
* Trade tensions, volatile and rising oil prices, and tightening global financial conditions pose substantial risks to growth, inflation outlook
*Calls for further strengthening of domestic macroeconomic fundamentals
- RBI has also proposed to introduce a regulatory framework for financial benchmarks which shall apply to benchmarks issued by the Financial Benchmarks of India.
- RBI will soon bring out guidelines for NBFCs to prevent asset-liability mismatch.
- The manufacturing and services PMIs also reported an increase in input costs and selling prices in Q2, reflecting a pass-through of higher costs to clients, says MPC.
- While the MPC will look through the statistical impact of HRA revisions, it says there is need to be watchful for any second-round effects on inflation.
- The next meeting of the MPC is scheduled from December 3 to 5, 2018.
For full text of Monetary Policy Statement please click on the following link: Fourth Bi-monthly Monetary Policy Statement, 2018-19 Resolution of the Monetary Policy Committee (MPC) Reserve Bank of India. & Fourth Bi-monthly Monetary Policy Statement, 2018-19
Source: rbi.org.in, Business Line, Money Control, First Post