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Wednesday, February 7, 2018

RBI holds interest rate at 6% for third time

The monetary policy committee (MPC) of the Reserve Bank of India decided to hold interest rates at 6 per cent for the third consecutive policy meeting as it sees retail inflation gaining momentum. Five of the six members of the MPC voted in favour of keeping rate unchanged, while one member, M.D. Patra, wanted a rate hike of 25 bps. While holding rates, the central bank said the stance of the policy remained neutral.

The decision comes after the consumer price index (CPI) inflation hit a 17-month high of 5.21 per cent in December. At its review meeting on Wednesday, the RBI increased its inflation forecast for Q4 to 5.1 per cent, compared to 4.3-4.7 per cent for the second half.
“Domestic pump prices of petrol and diesel rose sharply in January, reflecting lagged pass-through of the past increases in international crude oil prices. Considering these factors, inflation is now estimated at 5.1 per cent in Q4, including the HRA impact,” the RBI said.
Assuming a normal monsoon, the CPI inflation for 2018-19 is estimated in the range of 5.1-5.6 per cent in H1, including diminishing statistical HRA impact of the Central government employees, and 4.5-4.6 per cent in H2, with risks tilted to the upside, the RBI said.
Gross Value Added (GVA) growth for 2017-18 is projected at 6.6 per cent and for 2018-19 it is projected at 7.2 per cent.
The RBI said the fiscal slippage as indicated in the Union Budget could impinge on the inflation outlook. “Apart from the direct impact on inflation, fiscal slippage has broader macro-financial implications, notably on economy-wide costs of borrowing, which have already started to rise. This may feed into inflation.”

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