The Reserve Bank of India (RBI) in its first bi-monthly monetary policy review of 2017-18 today kept its key lending rate unchanged at 6.25 per cent.
The central bank said that it was awaiting further macroeconomic data before making changes.
However, the bank narrowed the policy corridor and hiked the reverse repo rate to six per cent.
"Consequent upon the narrowing of the LAF (liquidity adjustment facility) corridor, the reverse repo rate under the LAF is at 6.0 per cent, and the marginal standing facility (MSF) rate and the Bank Rate are at 6.50 per cent," an RBI policy statement said.
"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," it added.
The RBI said that risks are evenly balanced around the inflation trajectory at the current juncture.
"There are upside risks to the baseline projection," it said.
"Inflation developments have to be closely and continuously monitored, with food price pressures kept in check so that inflation expectations can be re-anchored. At the same time, the output gap is gradually closing. Consequently, aggregate demand pressures could build up, with implications for the inflation trajectory," it added.
At its last policy review in February, while holding rates at 6.25 per cent, the central bank had changed its policy stance from ‘accommodative’ to ‘neutral’.
Expectations that the RBI will maintain status quo on rates had been fuelled by inflation numbers, with wholesale inflation soaring to over a three-year high of 6.55 per cent in February and retail inflation climbing to 3.65 per cent due to rise in food and fuel prices.
In October last year, the Monetary Policy Committee (MPC), headed by RBI Governor Urjit Patel, had cut the repo rate by 25 basis points to 6.25 per cent. The RBI has reduced the repo overall by 1.75 per cent since January 2015.
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