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Financial News: India Maintains Key Interest Rates

India Maintains Key Interest Rates

02/07/2018 - 06:18:00 (RTTNews)

(RTTNews) - India's central bank kept its key interest rates unchanged for the third straight meeting and cautioned about risks to inflation outlook from fiscal slippage.

At the sixth bi-monthly monetary policy session on Wednesday, the Monetary Policy Committee of the Reserve Bank of India decided to hold the repo rate and continue with the neutral stance.

The repo rate was retained at 6.00 percent, the lowest since 2010, and the reverse repo rate at 5.75 percent. The bank had lowered the rates by 25 basis points at its meeting in August 2017.

Five members including Governor Urjit Patel voted in favor of the monetary policy decision, while hawkish member Michael Patra sought a 25 basis point hike.

Policymakers reiterated that they are committed to keep headline inflation close to 4 percent.

Inflation was estimated at 5.1 percent for the January to March period and to accelerate to 5.1-5.6 percent in the first half of fiscal year 2018-19. In the second half, inflation was seen at 4.5-4.6 percent, with risks tilted to the upside.

"...fiscal slippage as indicated in the Union Budget could impinge on the inflation outlook," the bank said. There is need for vigilance around the evolving inflation scenario in the coming months.

Further, the committee assessed that the nascent recovery needs to be carefully nurtured and growth put on a sustainably higher path.

The central bank forecast GVA growth for 2017-18 at 6.6 percent, instead of 6.7 percent projected in December.

Growth for the fiscal year 2018-19 was estimated at 7.2 percent - in the range of 7.3-7.4 percent in the first half and 7.1-7.2 percent in the second half.

Shilan Shah, an economist at Capital Economics, said the RBI will be wary of choking off the recovery too early, but with core price pressures rising, policy tightening is likely in the second half of 2018.

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