Our Bureau The Reserve Bank of India’s monetary policy committee on Wednesday decided to maintain status quo on the policy repo rate as it saw inflationary pressure building up in the economy.
The pressure, among others, is likely to arise due to the staggered impact of house rent allowance increases by various States, the possibility of crude oil and commodity prices going up, the impact of an increase in the minimum support price for kharif crops, and fiscal slippage.
As was widely anticipated, the six-member committee (MPC) voted 5:1 to keep the policy repo rate (the interest rate at which banks borrow funds from the RBI to overcome short-term liquidity mismatches) unchanged at 6 per cent in the sixth and last bi-monthly monetary policy review of FY18. It continued with a neutral monetary policy stance.
Market players expect the central bank to leave the policy repo rate unchanged in the first bi-monthly monetary policy review for FY2019, scheduled for April 5.
“We look at inflation projections longer than what is happening in this quarter,” said Urjit Patel, RBI Governor, at a media briefing. “If you look at our 2018-19 forecast, and if you make adjustments for HRA, going forward the inflation rates are still around 4.5 per cent... In some quarters, some months, they (inflation rates) may be a little high. Taking all that into account, we felt that at this stage, without more data coming, it was not necessary to change the repo rate or the policy stance.”
The RBI has forecast consumer price index inflation to be in the 5.1-5.6 per cent range during April-September 2018, and 4.5-4.6 per cent during October 2018-March 2019, with risks tilted to the upside.
The GVA (gross value added) growth for 2018-19 has been projected at 7.2 per cent on the back of early signs of a revival in investment activity as reflected in improving credit offtake, large resource mobilisation from the primary capital market, and improving capital goods production and imports.
Relief for MSMEs
The RBI also announced a slew of other measures, including a breather on repayment to GST-registered Micro, Small and Medium Enterprises (MSMEs), whose aggregate exposure of banks and NBFCs does not exceed ₹25 crore as on January 31, 2018. Rajnish Kumar, Chairman, SBI said: “The RBI inflation outlook suggests moderation in the second half of FY2019, which will have a positive impact on the bond market.”