RBI keeps benchmark interest rate unchanged for 2nd time

MUMBAI (INDIA): Reserve Bank of India (RBI) today left interest rates unchanged for second time in a row awaiting more clarity on inflation trend and impact of demonetisation on growth even as it hinted at no interest-rate cut in immediate future by shunning its long-held “accommodative” monetary policy stance.nnIt lowered economic growth forecast to 6.9 per cent for the current fiscal from 7.1 per cent estimated earlier, but said the economy will bounce back to 7.4 per cent next fiscal.nnThe broad-based Monetary Policy Committee “decided to change the stance from ‘accommodative’ to ‘neutral’ while keeping the policy rate on hold to assess how the transitory effects of demonetisation on inflation and the output gap play out,” Reserve Bank Governor Urjit Patel said.nnThe six-member panel voted 6-0 to keep the repo rate unchanged at 6.25 per cent, marking its third straight unanimous decision since September when it was formed. It had cut interest rate by 0.25 per cent in its maiden meeting but held on to the rates in December and again today despite fervent calls for a reduction in rates to boost lending.nnAt 6.25 per cent, the repo rate is already at a six-year low.nnPrior to that, RBI had cut interest rates by 150 basis point or 1.5 percentage points since January 2015.nnRBI projected retail inflation in the range of 4 to 4.5 per cent in the first half of 2017-18 fiscal and between 4.5 per cent to 5 per cent in the second half.nnThe Central Bank said it is “committed to bringing headline inflation closer to 4.0 per cent on a durable basis and in a calibrated manner” and this requires further “significant decline in inflation expectations, especially since the services component of inflation that is sensitive to wage movements has been sticky.nnPatel said non-food part of the consumer price index (CPI) has been sticky at 4.8 to 4.9 per cent and had it not been for a destruction of vegetables and other perishables due to junking of old 500 and 1000 rupee notes, retail inflation would have been 140 basis points higher than the 3.4 per cent seen in December.nnRBI also decided to form a separate enforcement department for stricter enforcement of its regulatory and supervisory actions.nnSource: Press Trust of India