Reserve Bank of India keeps repo rate unchanged at 5.15%
The Reserve Bank of India (RBI), kept the repo rate unchanged at 5.15%. The reverse repo rate also remained the same at 4.90%. This decision was taken by the Monetary Policy Committee (MPC) on Thursday. The Committee voted 6-0 in favor of not tweaking the rates. RBI said it will maintain the "accommodative" stance for as long as it is necessary to revive growth.
No cut can be expected till June
The repo rate is the rate at which the apex bank loans money to commercial banks. No cut can be expected until June. RBI said these decisions were taken to achieve the medium-term target for the consumer price index. One of the major conclusions of MPC pertained to the GDP growth rate. RBI forecast that GDP growth for 2020-21 will be at 6.0%.
Onion prices were blamed for surge in inflation
Further, the CPI inflation projection was revised upwards to 6.5% for the fourth quarter of 2019-20. It was projected at 5.4-5% for H1 of 2020-21; and 3.2% for Q3 of 2020-21. The risks have broadly been balanced. Further, RBI blamed the rise in onion prices for the spike in inflation beyond the upper tolerance band. It said the inflation outlook remains uncertain.
Food inflation will soften, crude oil prices will remain volatile
Further, RBI noted that food inflation is likely to soften and it will become more pronounced in Q4 of 2019-2020. It said higher production of vegetables, despite unseasonal rain causing a loss, will be an important factor. About crude oil, RBI said it is likely to remain volatile, courtesy the tensions crippling the Middle East. The "uncertain global economic outlook" will also affect it.
MPC will remain vigilant
"Accordingly, the MPC will remain vigilant about the potential generalization of inflationary pressures as several of the underlying factors cited earlier appear to be operating in concert," the MPC said in a statement.
Economy continues to be weak, noted MPC
The MPC concluded that the economy continues to be weak. "While some high-frequency indicators have turned around and point to a lift in the momentum of economic activity, there is a need to await incoming data to gauge their sustainability," the bank added. RBI Governor Shaktikanta Das said RBI has many instruments, other than monetary policy, that can be used to revive growth.
