RBI keeps repo rate steady at 6.5% in monetary policy review
The Reserve Bank of India (RBI) at its monetary policy review meeting today kept the repo rate unchanged at 6.50% even as it cut statutory liquidity ratio (SLR) by 25 bps to 19.75% while maintaining the policy stance at “calibrated tightening”. The repo rate is the interest rate at which RBI lends money to the banks for the short term.
In the wake of softening inflation and GDP growth, most of the analysts polled by Reuters had expected the RBI to keep its repo rate steady. Since embarking on a tightening cycle in June, the RBI has raised its policy repo rate by 50 basis points, with the last increase to 6.50% made in August.
The rupee is now nearly 6% off its record lows and the recent fall in global crude prices has also eased worries over India’s current account deficit. Since the last policy, when the central bank surprised the market by keeping rates on hold, crude oil prices have slipped to around $60/ barrel, from four-year highs of $86/ barrel.
Data released last week showed the economy suffered an unexpectedly sharp slowdown in the July-September quarter, when annual growth slid to 7.1% from a two-year high of 8.2% posted in the previous quarter. Weaker global oil prices and domestic food prices are expected to drag the headline inflation rate below projections. In October, inflation had eased to a 13-month low of 3.31%, below the RBI’s medium-term target of 4%.
In the previous policy, the monetary policy committee had lowered its inflation trajectory to 3.9-4.5% for the second half of the current fiscal. “Markets will watch out for stance on liquidity. The money markets have been in a deficit mode for weeks, as credit growth outstrips deposit growth and FPI inflows are muted,” said an analyst.