RBI Monetary Policy review: In a surprising move RBI keeps repo rate unchanged

The Monetary Policy Committee of the Reserve Bank of India, amid speculation of a hike, decided to hold the repo rate under the liquidity adjustment facility (LAF) at 6.5 percent on the basis of current and evolving macroeconomic situation in the country.

The MPC changed its stance from “neutral” to “calibrated tightening” ruling out any further rate cut.

The MPC reiterated its commitment to achieving the medium-term target for headline inflation of 4 per cent within a bank of +/- 2 percent on a durable basis. 

The inflation trajectory is projected to rise in the future due to vulnerable oil prices, volatility in global financial markets, remunerative prices ensured to farmers for their produce, sharp rise in input costs risking hike in retail prices for both goods and services and staggered impact of HRA revision by the state governments.

Inflation in many key EMEs has risen on surging crude prices and currency depreciations, caused by a firm dollar and domestic factors,” the RBI said in its policy statement.

 The MPC noted that, “global headwinds in the form of escalating trade tensions, volatile and rising oil prices, and tightening of global financial conditions pose substantial risks to the growth and inflation outlook. It is, therefore, imperative to further strengthen domestic macroeconomic fundamentals. “

The rupee breached the 74-mark against US dollar for the first time, hitting a new low of 74.20 against the dollar, soon after the RBI announced its monetary policy. RBI governor Urjit Patel Friday reiterated that the domestic currency is still better than its emerging market peers and that the apex bank does not have a target for it, news agency PTI reported.

The RBI retained GDP growth estimate at 7.4 per cent for fiscal year ending in March 2019.

The RBI lowered the CPI Inflation forecast for Q2FY19 to 4% from 4.6%; to 3.9-4.5% from 4.8% in H2FY19. RBI said that the retail inflation fell from 4.9% in June to 3.7% in August, due to a decline in food inflation.

Abha Boyal

Abha has taste of years in journalism and writing. She is known to elaborate her findings in a vibrant way. With writing as her incredible skill, Abha also enjoys exploring new places. She stays focused on whatever she does and this makes her an all rounder.

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