The Reserve Bank of India (RBI), on April 5, 2018, kept the key policy rate unchanged at six per cent, for the fourth consecutive time since August 2017, in view of uncertainties around inflation. Consequently, the repo rate, at which the central bank lends short-term money to other banks, will continue to stay at six per cent. The reverse repo rate, at which it borrows from banks and absorbs excess liquidity, will remain at 5.75 per cent.
The Monetary Policy Committee (MPC), headed by RBI governor Urjit Patel, had last reduced the benchmark lending rate by 0.25 percentage points to six per cent last August, bringing it to a six-year low. “The MPC decided to keep the policy repo rate on hold and continue with the neutral stance. The MPC reiterates its commitment, to achieving the medium-term target for headline inflation of four per cent on a durable basis,” said the first bi-monthly monetary policy for 2018-19.
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The headline inflation, after surging to a concerning 5.2 per cent in December 2017, cooled off to 5.07 per cent in January 2018 and further to 4.4 per cent in February 2018. The RBI has been asked by the government to target inflation at four per cent, plus or minus two per cent and its rise beyond the comfort zone, will put pressure on the central bank to not cut interest rates (repo rates).
