RBI leaves repo rate unchanged at 6.25%, reverse repo rate stays at 6%
RBI leaves repo rate unchanged at 6.25%, reverse repo rate stays at 6%business Updated: Jun 08, 2017 11:08 IST
The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) kept the repo rate unchanged at 6.25% on Wednesday, as analysts said inflation was running well below forecasts, and the economy has slowed more than expected.
Consumer price inflation data for May will be released next week, but going by the April figures inflation is trending well below the RBI’s projection for 4.5% in the six months to September, and 5.0% for the six months through to March next year.
Notching its lowest annual rate in at least five years, consumer price inflation slowed to 2.99% in April from 3.89% in March, just below the RBI’s target of 4.0%.
Gross domestic product grew 6.1% in January-March, down from 7% the previous quarter, to post its slowest growth rate in more than two years.
“Markets are not reacting negatively to any of the events... Everything seems right in place,” said Jayant Manglik, president for retail distribution at Religare Securities Ltd, adding that the latest monsoon forecast also brought some cheer.
Rishi Shah, economist at Deloitte India, said, “After the last figure for inflation, there was a lot of expectations within the market that the RBI might really cut rates in the current policy. We actually don’t believe that.We think the RBI will wait and watch how the inflation trajectory develops.”
Siddhartha Sanyal, chief India economist at Barclays, added, “We don’t expect any change in the official neutral stance in June but we do expect RBI to tone down its hawkishness compared to the April and February policy statements.”
Investors’ uncertainty over the RBI’s stance was heightened by the release of minutes from the April meeting of the monetary policy committee which showed two of its six members had proposed rate hikes, before the committee ultimately voted 6-0 to leave rates unchanged.
The RBI had justified its hawkish stance citing the impact of planned pay hikes for government employees and the introduction of a nationwide goods and service tax (GST), as well as fears of a weaker-than-expected monsoon.
Monsoon rains, however, arrived ahead of schedule this month and are forecast to be above-average, and government has avoided jacking up GST rates except for certain items it considers luxuries, including movie tickets.
(With agency inputs)