The 6-member Monetary Policy Committee (MPC), headed by Governor Urjit Patel of the Reserve Bank of India (RBI) recently has taken a call to keep the Repo or key lending rate unchanged at 6 per cent, however, leaving the inflation concept aloof. The prediction was on the basis of consumer inflation which increased in October to 3.58 per cent, due to increased cost of food items. It is known that in August this year, RBI had cut the rates by 25 basis points and made it steady in October.
In a nutshell, the RBI review can be summed up as under:
- The Monetary Policy Committee will review the repo rate again on February 6 and 7, 2018.
- RBI has put the inflation forecast to 4.3-4.7 per cent in third and fourth quarters of current fiscal year.
Keeping in mind the global and national economic indicators, RBI retained its October outlook for real Gross Value Added (GVA) growth for 2017-18 at 6.7 per cent.
Also, RBI note added that the neutral stance of monetary policy is 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.
Thus, the Monetary Policy Committee (MPC) has decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.0 per cent.
RBI’s stance on liquidity would also be closely watched. Excess liquidity with banks is down to around Rs. 70,000 crore from a peak of more than Rs. 5 lakh crore in March, according to the Bloomberg Economics India Banking Liquidity Index. This in turn has resulted in State Bank of India and the Punjab National Bank – large state-run lenders raising their rates on bulk deposits.