Reserve Bank of India keeps repo rate unchanged; pegs GVA at 8.1% in FY19

The Reserve Bank of India (RBI) in its first bi-monthly policy for the financial year 2017-18 on Thursday decided to keep the repo rate unchanged at 6.25%. The decision was taken unanimously by the Monetary Policy Committee (MPC) headed by RBI Governor Urjit Patel.

However, in a surprise move, RBI raised the reverse repo rate to 6% from 5.75% tightening monetary policy unexpetedly.

The marginal standing facility was cut by 25 basis points to 6.5% from 6.75%.

Reverse repo rate is the rate at which RBI borrows money from banks.

The central bank has forecast Gross Value Added (GVA) growth at 7.4% in the financial year 2017-18 and 8.1% in FY19.

Moreover, the RBI Economists see inflation at 5% in the second half of FY18.

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The analysts were expecting RBI Governor Urjit Patel and Monetary Policy Committee (MPC) to maintain status-quo on interest rates as the main focus will be towards liquidity surplus.

A poll was carried out by Zee Business revealed that 80% of the analysts believed RBI to not cut interest rates while the rest saw 0.25% reduction.

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In last policy of FY17, six-member monetary policy committee (MPC) changed credit policy stance to neutral from accommodative. The central bank on February 8, kept the repo rate unchanged at 6.25%.

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Madhavi Arora, Suvodeep Rakshit and Upasna Bhardwaj analysts at Kotak Institutional Equities said, “Despite a lower FY2018 inflation trajectory than RBI, we do not pencil in any rate cuts owing to shift in RBI’s stance to neutral, premised on (1) possible second-round impact of sticky-to-rising core inflation, (2) tighter global financial conditions, (3) FX volatility and (4) higher commodity prices."