Published: Thu, December 06, 2018
Finance | By Loren Pratt

RBI keeps key policy rates on hold as uncertainties loom

RBI keeps key policy rates on hold as uncertainties loom

The RBI, however, lowered inflation forecast sharply for the second half (six months) of 2018-19 to 2.7 per cent-3.2 per cent.

In its last bi-monthly monetary policy, the RBI, against the popular opinion had kept the repo rate unchanged at 6.50 per cent.

In its last monetary policy in October, RBI had maintained status quo on the benchmark interest rate but warned that volatile and rising oil prices, and tightening of global financial conditions pose substantial risks to the growth and inflation. RBI Governor Urjit Patel said fall in crude oil prices will impart downward bias to inflation trajectory.

Sujan Hajra, Chief Economist at Anand Rathi Financial Services, said "Calibrated reduction of SLR announced in the policy today is in line with the long-term strategy of the RBI to scale down pre-emption of bank resources by the government without undermining quality of bank balance sheet".

While there was no rate action, the RBI said banks' Statutory Liquidity Ratio (SLR), which is a slice of deposits that banks have to invest in Central and State government securities, will be reduced by 25 basis points every quarter, beginning January 2019, until it reaches 18 per cent of deposits from 19.5 per cent now.


While the decision on keeping the policy rate unchanged was unanimous, Ravindra H Dholakia voted to change the stance to neutral.

The central bank also retained its "calibrated tightening" stance as expected. It expects inflation to quicken to 3.8-4.2% in the first half of the following year.

While the Statutory Liquidity Ratio now remains unchanged at 19.5%, the RBI has said it will be gradually reduced to 18% over the next six quarters.

Since then the RBI's pause on rates has been in contrast to other Asian central banks, including South Korea, Philippines and Indonesia, that have raised rates.

The rupee eased to 70.60 to the dollar from 70.50 before the policy statement, while the broader Nifty was down 0.8 percent at 3:39 pm. PM Modi's government has faced criticism over the distress among farmers and small businesses.

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