Monetary policy review: RBI keeps repo rate unchanged at 6.5 per cent

FILE PHOTO: A security personnel member stands guard at the entrance of the Reserve Bank of India (RBI) headquarters in Mumbai | Photo: Reuters
Contrary to market expectations, the monetary policy committee (MPC) of the Reserve Bank, in its fourth bi-monthly monetary policy review of 2018-19, kept repo rate unchanged at 6.5 per cent on Friday.

Repurchase rate, or repo, is the rate at which the RBI lends money to commercial banks in the event of any shortfall of funds.

The central bank said the policy stance has changed to "calibrated tightening" from neutral. Headline inflation was estimated to accelerate to 4.5 per cent by March 2019 quarter with upside risks, it said.

RBI retained the country's gross domestic product (GDP) growth estimate at 7.4 per cent for FY19 and 7.6 per cent for FY20.

In its two previous bimonthly policy reviews, RBI had raised interest rates. In its August policy meet, the rate setting panel headed by Governor Urjit Patel had raised repo rate by 25 basis points to 6.50 per cent.

Amid the free fall in rupee and boiling crude oil prices, the central bank was widely expected to raise interest rates. The domestic unit on Thursday had crashed to a historic low of 73.81 to the dollar due to the twin-impact of capital outflows triggered by surging US Treasury yields and crude oil prices racing to a four-year high.

Reacting to the RBI's latest policy move to maintain the status quo, the rupee plunged further to slip below the 74-a-dollar mark.

Oil prices (Brent) have increased by 14 per cent from $72.3/barrel to $82.7/barrel during August 1 and September 29, 2018. With OPEC ruling out increase in crude oil production and supply concerns ahead of the US sanctions on Iran, the oil prices will continue to move in the upward direction, CARE Ratings had said in a note.

On the inflation front, high base effect and moderation in prices across all the key segments of the CPI Index, barring fuel and light, resulted in lower inflation in August 2018. Despite the moderation, house rent and the miscellaneous categories registered above 5 per cent inflation rates. The core inflation too eased during July, 2018 and August, 2018, however remained above the 4 per cent target set by the Monetary Policy Committee, observed CARE Ratings.

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