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RBI maintains status quo, keeps repo rate unchanged at 6.50%

The reverse repo rate under the LAF will remain unchanged at 6.25 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.

twitter-logo BusinessToday.In   New Delhi     Last Updated: December 5, 2018  | 14:49 IST
RBI maintains status quo, keeps repo rate unchanged at 6.50%

In line with market expectation, Reserve Bank of India has maintained status quo in its latest policy announcement on Wednesday, a move to maintain liquidity in the system in the backdrop of easing crude prices and a rebound in the rupee from record lows.

On the basis of an assessment of the current and evolving macroeconomic situation, RBI, in the fifth bi-monthly monetary policy statement, kept the repo rate, the rate at which the central bank lends money to commercial banks, under the liquidity adjustment facility (LAF) unchanged at 6.50 per cent, for the second consecutive time this year.

The decision of the MPC is consistent with the stance of calibrated tightening of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index(CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.

Consequently, the reverse repo rate under the LAF will remain unchanged at 6.25 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.

The RBI Governor Urjit Patel kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liability (NDTL). After two successive rate hikes, the central bank had kept key policy rates unchanged at 6.5 per cent in the last meeting in October, as five out of the six monetary policy committee (MPC) members voted to hold rates at existing level.

In the fourth bi-monthly resolution of October 2018, CPI inflation was projected at 4.0 per cent in Q2:2018-19, 3.9-4.5 per cent in H2 and 4.8 per cent in Q1:2019-20, with risks somewhat to the upside. The actual inflation outcome in Q2 at 3.9 per cent was marginally lower than the projection of 4.0 per cent. However, the October inflation print at 3.3 per cent turned out to be unexpectedly low.

Given the ongoing tussle between RBI and Centre, the latest policy stance by Governor Urjit Patel is likely to appease the government, which is seeking more support for banks to continue lending.

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