6 Dec 2017, 16:35 — 2 min read
Led by RBI Governor Urjit Patel, the 6 member Monetary Policy Committee announced today that interest rates would not be changed, thereby maintaining a neutral stance.
It has been reported that the Monetary Policy Committee has left the key policy repo rate unchanged at 6%. Likewise, it has left the reverse repo rate at 5.75%. The cash reserve ratio too has been left unchanged at 4%.
There was speculation in the run-up to this repo-rate announcement that there would be a reduction in the rates to spur the economy even further on a growth trajectory. However, a 7-month high inflation of 3.58% proved to be a conundrum that was not so easily overcome.
The RBI may have wished to reduce rates and pursue double digit growth, but the interest rates were kept static to ensure that inflation remains in it’s target level of 4% (+/-2%). The MPC took note of strain from food and oil prices and has committed to keeping headline inflation at 4%.
“It’s going to be a status quo. The liquidity in the system is very low, deposit rates are firming up and there are concerns about inflation,” Union Bank MD and CEO Rajkiran Rai G has said.
“On the whole, inflation is estimated in the range 4.3-4.7 per cent in Q3 and Q4 of this year, including the HRA effect of up to 35 basis points, with risks evenly balanced,” RBI said in its policy statement
The signs are that the economy is steadily recovering from a low with GDP expanding by 6.3% in the July-September period, higher than 5.7% from the preceding period. The inevitable slowdown of GST seems to have been overcome with businesses once again on a path of uninterrupted growth.
Stock markets responded by trading lower after the announcements with business leaders and investors disappointed that their call to reduce interest rates had gone unheeded.
Posted byGlobalLinker Staff
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