Wednesday, 19 December, 2018

Monetary policy review: RBI keeps repo rate unchanged at 6.5%

RBI to announce its fifth bi-monthly monetary policy review of the current financial year this afternoon Monetary policy review: RBI keeps repo rate unchanged at 6.5%
Priscilla Morrison | 05 December, 2018, 16:13

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 percent made in August. The reverse repo rate is used by the monetary policy committee as a tool to control the money supply in the country.

The MPC, which takes the decisions on the key interest rates, has six members, three of which are members of the RBI, while the rest are appointed by the Government of India.

The monetary policy committee is expected to keep the repo rate on hold due to the fall in crude oil prices and lower-than-expected inflation. The reverse repo rate also remains unchanged at 6.25 per cent.

This is for the second time in a row that the central bank did not tinker with the interest rate. However, headline inflation, as measured by the consumer price index (CPI), for October came in below RBI estimates at 3.31%. For the first half of 2019-20, the GDP is been projected at 7.5 per cent. RBI said inflation in the second half of the current fiscal is projected at is projected at 2.7-3.2 per cent.

Bankers expect the central bank to revise the inflation trajectory downward by 10-20 basis points (bps). Oil prices have fallen almost 30 per cent after hitting a high of $86/barrel early October.

More news: University led by Ignatieff forced to relocate out of Hungary

SLR is the reserve requirement that the commercial banks in India are required to maintain in the form of cash, gold reserves, government-approved securities before providing credit to the customers.

Some experts say RBI could cut the cash reserve ratio by 50bps, given that it has remained unchanged since 2013.

Measures to Improve liquidity management by banks: In order to enable banks to forecast their liquidity requirements with a greater degree of precision, it has been decided that RBI will provide information on daily CRR balance of the banking system to market participants on the very next day.

How will RBI address the India liquidity crisis?

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