Published: Wed, December 06, 2017
Research | By Raquel Erickson

India's central bank holds rates at seven-year low

India's central bank holds rates at seven-year low

All but two of 54 analysts in a Reuters Poll had expected the repo rate would be left unchanged at 6 per cent, the lowest since November 2010.

At its penultimate monetary policy review of the fiscal, the six-member Monetary Policy Committee (MPC) of the RBI kept the short-term lending rate unchanged at 6 per cent in its fifth bi-monthly policy review of the fiscal year.

RBI kept the repo rate unchanged at 6 per cent, reverse repo rate at 5.75 per cent and bank rate at 6.25 per cent.

Official data last week showed that India's economy had picked up in the second quarter, rebounding from a slump that had dragged growth to three-year lows.

RBI also said it has made a decision to rationalise charges on Debit card transactions to give a further fillip to digital payments.

Addressing the media, RBI Governor Urjit Patel said the MPC took note of pressures from food and fuel prices and that it was committed to keeping headline inflation at 4 percent.

Besides, recapitalisation of public sector banks may help improve credit flows further, it added.

While the government was hoping for a rate cut experts were of opinion that it might be unlikely.

The central bank also said that the "recent rise in worldwide crude oil prices may sustain, especially on account of the OPEC's decision to maintain production cuts through next year".

Another source of RBI discomfort is that core inflation, which excludes food and energy prices, has remained stubbornly high at around 4.5 percent.

In addition, the consumer price index (CPI), or retail, inflation for October rose to 3.58 per cent from 3.28 per cent in September.

The Indian economic growth recovered to 6.3 percent year-on-year in the third quarter from the previous quarter's 5.7 percent growth, slightly coming below the market projection of 6.4 percent.

The uncertainty about India's fiscal management is being further exacerbated as the government is due to unveil its budget for the next fiscal year in early February, before the RBI's next meeting.

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