RBI keeps key interest rates unchanged


The Reserve Bank of India has kept key interest rates unchanged, as was widely expected, in its fifth bi-monthly monetary policy review

The Reserve Bank of India (RBI), on December 6, 2017, kept the key interest rates unchanged, on expected lines, but raised the inflation forecast for the remainder of the current financial year to 4.3-4.7 per cent. The six-member Monetary Policy Committee (MPC), headed by Reserve Bank of India Governor Urjit Patel, in its fifth bi-monthly review, kept the repo rate unchanged at six per cent and the reverse repo at 5.75 per cent.

It said the reason for the decision was ‘achieving the medium-term target for consumer price index (CPI) inflation of four per cent within a band of +/- two per cent, while supporting growth’. The central bank kept the economic growth forecast unchanged at 6.7 per cent for the fiscal ending March 31.

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Commenting on the status quo in the monetary policy, Shishir Baijal, chairman and managing director, Knight Frank India said: “The move to keep the repo rate unchanged by the Reserve Bank of India’s monetary policy committee, comes as no surprise. The industry was not expecting a rate cut amid the current macro-economic scenario, with inflation touching a six-month high in October 2017 and more importantly, the uncertainty staring the economy in the near future. However, the want of a growth-inducing monetary policy would continue to have its imprints on the slowdown-hit real estate sector. A cut in the policy rate, could have helped stimulate growth and demand, particularly in the wake of the recent Moody’s India upgrade.”

Keeping the repo rate (the rate at which the central bank lends to banks) unchanged at six per cent, is consistent with the RBI’s stand this year, says Sachin Sandhir, global managing director, emerging business, RICS . “The only time the RBI cut rates this year was in August, 2017 by 25 basis points (0.25 per cent). This means that home loans will not reduce further, which does not do much for the real estate sector. A rate cut would have helped the economy but inflation also has to be taken into account. The RBI has estimated inflation to be in the range of 4.3-4.7 per cent for Q3 and Q4 respectively. Considering these factors, we believe the RBI has taken the right position,” he added.

 

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