RBI maintains 'neutral' stance on monetary policy; keeps repo rate unchanged at 6 per cent

 BusinessToday.in   New Delhi     Last Updated: December 7, 2017  | 08:53 IST
RBI maintains 'neutral' stance on monetary policy; keeps repo rate unchanged at 6 per cent

The Reserve Bank of India on Wednesday left the repo rate and the reverse repo rate unchanged at 6 per cent and 5.75 per cent, respectively. In its fourth bi-monthly monetary policy review for 2017-18, five of six Monetary Policy Committee (MPC) members voted for retaining the policy rates. In August, the RBI had cut the repo rate by 25 basis points but it held the same in October. The cash reserve ratio (CRR) too was left unchanged at 4 per cent. The primary reason behind no change in the policy rates reflects the RBI's focus on inflation control, and its analysis of India's strong economic prospects. 

At the Monetary Policy Committee meeting, Chetan Ghate, Pami Dua, Michael Debabrata Patra, Viral V Acharya and Urjit R Patel were in favour of keeping the repo rate unchanged while Ravindra H Dholakia voted for a policy rate reduction of 25 basis points.

Here are some key takeaways from RBI's monetary policy statement.  

Inflation to remain between 4.2-4.6 per cent
The October bi-monthly statement projected that the inflation -already at a seven-month high - will rise and range between 4.2-4.6 per cent in the second half of this year. The inflation path will be influenced by several factors, including the impact of increase in house rent allowance (HRA) by the Centre, and there's is a risk that this upward trajectory may continue in the near-term, said the RBI. The retail inflation measured by year-on-year change in the consumer price index (CPI) recorded a seven-month high in October. The food inflation declined sharply in September but bounced back in October due to vegetables and fruits price rise. The RBI said the farm loan waivers, partial roll back of excise duty, and Goods and Services Tax rate cuts may also affect inflation.

Reforms to boost growth prospects
In the Monetary Policy Committee (MPC) assessment, there have been several significant developments including raise in the capital from the primary capital market, ease of doing business, the recapitalisation of public sector banks and tightening of the insolvency and bankruptcy code (IBC), which auger well for growth prospects. However, it retained the growth forecast at 6.7 per cent for 2017-18 even though the gross value added (GVA) in the second quarter rose to 6.3 per cent.

Global economies gain momentum
The RBI said the global economic powerhouses like the US, and the Euro zone, and Japan also gained momentum in the past quarter, with uptick momentum in private consumption, investment activity and net exports. Accommodative monetary policy, strong job gains and external demand also contributed to the factor, said the central bank. Talking about macro-level global economic trend, the RBI said the latest World Trade Organisation (WTO) report indicates a loss of momentum in global trade due to declining export orders. Besides, it said, crude oil prices touched a two-and-a-half-year high in early November on account of the Organisation of the Petroleum Exporting Countries' (OPEC) efforts to rebalance the market.

Production to pick up in Q3
According to the Reserve Bank's Industrial Outlook Survey (IOS), the production is expected to pick up in Q3 as order books are rising. The RBI suggested a mixed picture for Q3 citing core industries' flat growth in October.  The services sector activity has remained mixed in October, said the central bank, suggesting that the sentiments on service sector activity for Q3 are upbeat. The RBI said the sharp acceleration in industrial activity sequentially accelerated the growth of real gross value added (GVA) in Q2. The GVA growth in manufacturing got a boost due to high demand and re-stocking post goods and services tax (GST) implementation.

RBI reduces merchant discount rates for debit card transactions
The Reserve Bank of India (RBI) has further reduced the Merchant Discount Rates (MDR) - cost paid by a merchant to a bank for accepting payment via credit or debit cards - for debit card transactions. For merchants with turnover of up to Rs 20 lakh, the MDR has been capped at 0.40% if the transaction involves physical infrastructure such as a swipe machine. If the transaction is conducted via a QR code, the MDR has been further reduced to 0.30%. For merchants whose annual turnover exceeds Rs 20 lakh, the MDR has been capped at 0.90% for swipe machine based transactions and 0.80% for QR code based sales, subject to a maximum of Rs 1,000 per transaction. Following demonetisation, MDR was reduced for transactions up to Rs 1000 to 0.25% of the transaction value, and .2% for transactions between Rs 1000-Rs 2000.


Also read: RBI keeps repo rate unchanged at 6%; raises inflation forecast


  • Print

A    A   A