The Monetary Policy Committee of the Reserve Bank of India today decided to keep key rates unchanged citing inflationary risks and cut growth forecast to 6.7 per cent, down from 7.3 per cent for the 2017-18 fiscal year.
Also Read: RBI keeps key rates unchanged at 6%, cuts growth forecast to 6.7%
Ravindra Dholakia was the sole member of the six-member monetary policy committee that voted for a 0.25 per cent reduction in rates.
Here are 10 key takeaways from the RBI’s monetary policy review:
- The RBI has kept interest rate unchanged. The repo rate, at which it lends to banks, will stay at 6 per cent. The reverse repo rate, at which the RBI borrows from banks, also stay unchanged at 5.75 per cent. Related Stories
- The RBI sees CPI inflation rising to at 4.2 per cent in October-December quarter and 4.6 per cent in January-March after touching a record low in June. “The MPC decided to keep the policy stance neutral and monitor incoming data closely. The MPC remains committed to keeping headline inflation close to 4 per cent on a durable basis,” it said.
- Although the domestic food price outlook remains largely stable, generalised momentum is building in prices of items excluding food, especially emanating from crude oil, the RBI statement said, adding that the possibility of fiscal slippages may add to this momentum in the future. “The MPC also acknowledged the likelihood of the output gap widening, but requires more data to better ascertain the transient versus sustained headwinds in the recent growth prints,” it added.
- The RBI cut growth forecast for 2017-18 to by gross value added (GVA) basis to 6.7 per cent from 7.3 per cent earlier. The loss of momentum in Q1 of 2017-18 and the first advance estimates of kharif foodgrains production are early setbacks that impart a downside to the outlook, it said.
- The RBI said that the implementation of the GST so far appeared to have had an adverse impact, rendering prospects for the manufacturing sector uncertain in the short-term.
- The RBI also reiterated need to revive sluggish private sector investment to boost the economy and improve demand for overall credit. It listed several measures to boost growth such as “a concerted drive to close the severe infrastructure gap; restarting stalled investment projects, particularly in the public sector; enhancing ease of doing business, including by further simplification of the GST; and ensuring faster rollout of the affordable housing program with time-bound single-window clearances and rationalisation of excessively high stamp duties by states”.
- RBI said its attempts towards resolution of stressed corporate exposures in bank balance sheets should start yielding dividends for the economy over the medium term.
- When asked on the prospect of a future rate cut, RBI Governor Urjit Patel said that inflation has been volatile. “We will see what happens.”
- The RBI Governor, however, noted that many factors suggest that growth is on an uptick. He also cited the services sector growth in the second quarter as an encouraging sign and hoped for a cyclical upturn in the next two quarters.
- The decision to hold interest rates was not unanimous. Ravindra Dholakia, one of the three external members of the panel, pressed for lowering rates by at least 25 basis points.
