The Reserve Bank of India (RBI), on June 7, 2017, kept interest rates unchanged, as widely expected but raised concerns over fiscal slippages in view of a rush for farm loan waivers.
The fifth meeting of the Monetary Policy Committee (MPC) maintained the repo rate, at which it lends to banks, at 6.25 per cent and the reverse repo, at which it borrows, at 6 per cent.
The RBI, however, slashed the Statutory Liquidity Ratio (SLR), or the percentage of deposits that banks have to park in government securities, by 0.5 per cent to 20 per cent, in a move that would result increased lending by banks.
“The decision of the MPC is consistent with a neutral stance 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,” the RBI said in its second bi-monthly policy review for 2017-18.
“The current state of the economy underscores the need to revive private investment, restore banking sector health and remove infrastructural bottlenecks. Monetary policy can play a more effective role only when these factors are in place,” it said.
The central bank, however, raised concerns over the possibility of fiscal slippages due to the farm loan waivers. “The risk of fiscal slippages, which, by and large, can entail inflationary spillovers, has risen with the announcements of large farm loan waivers,” it said. The RBI also cut the economic growth projection to 7.3 per cent for the current fiscal, from 7.4 per cent earlier.