Published On: Wed, Dec 5th, 2018

RBI keeps repo rate, stance unchanged citing risks to inflation

Mumbai: Upside risks to inflation led the Reserve Bank of India (RBI) on Wednesday to keep its key lending rate for commercial banks unchanged at 6.5 per cent for the second time in succession.

The central bank’s reverse repo rate has been maintained at 6.25 per cent

Consequently, the central bank’s reverse repo rate has been maintained at 6.25 per cent, and the marginal standing facility (MSF) rate and the bank rate at 6.75 per cent.

The RBI’s monetary policy committee (MPC) also made no changes to its stance of “calibrated tightening” in its penultimate monetary policy review of the current fiscal. The stance was adopted in the last policy review conducted in October.

The decision on keeping the policy rate unchanged was taken unanimously by the six-member MPC headed by RBI Governor Urjit Patel. However, government nominee in the MPC, Ravindra Dholakia, voted to change the stance back to neutral.

According to the RBI, even as inflation projections have been revised downwards significantly and some of the risks pointed out in the last resolution have been mitigated, especially of crude oil prices, several uncertainties still cloud the inflation outlook.

“The MPC noted that the benign outlook for headline inflation is driven mainly by the unexpected softening of food inflation and collapse in oil prices in a relatively short period of time,” Patel said at the post-meeting press conference.

“Excluding food items, inflation has remained sticky and elevated, and the output gap
remains virtually closed.”

Although the central bank has lowered its CPI (consumer price index), or retail inflation, projection, it did not change the policy stance.

Accordingly, the central bank believes that there are challenges like a sudden spike in prices of perishable food items, risks from revision in minimum support prices (MSPs) and rise in crude oil price to inflation and inflationary outlook.

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