Mumbai April 6 (IANS) With inflationary concerns in mind the Reserve Bank of India (RBI) in its first bi-monthly monetary policy review of 2017-18 on Thursday kept its key lending rate unchanged at 6.25 per cent saying it awaited further macroeconomic data before making any changes.
The RBI s Monetary Policy Committee (MPC) kept the repurchase (repo) rate or the short-term lending rate it charges on borrowings by commercial banks unchanged for the third consecutive time at 6.25 per cent.
However the MPC decided to narrow the policy rate corridor by 25 basis points. The corridor is the difference between the repo and reverse repo rate. A narrow corridor is expected to check money flow into the banking system and to drain out additional liquidity.
The adjustment automatically hiked the reverse repo rate under the liquidity adjustment facility (LAF) to six per cent. Conversely RBI maintained the cash reserve ratio (CRR) or the quantum of liquid funds which commercial banks have to keep at 4 per cent.
Consequent upon the narrowing of the LAF corridor the reverse repo rate under the LAF is at 6.0 per cent and the marginal standing facility (MSF) rate and the Bank Rate are at 6.50 per cent an RBI policy statement said.
The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent while supporting growth it added.
The RBI said risks are evenly balanced around the inflation trajectory at the current juncture. There are upside risks to the baseline projection it said.
Inflation developments have to be closely and continuously monitored with food price pressures kept in check so that inflation expectations can be re-anchored. At the same time the output gap is gradually closing. Consequently aggregate demand pressures could build up with implications for the inflation trajectory it added.
All six members of the panel chaired by RBI Governor Urjit Patel voted in favour of the monetary policy decisions -- the minutes of which will be released on April 20. The next meeting of the MPC is scheduled on June 5 and 6 2017.
At its last policy review in February 8 2017 while holding rates at 6.25 per cent the central bank had changed its policy stance from accommodative to neutral.
Expectations that the RBI will maintain status quo on rates had been fuelled by inflation numbers with wholesale inflation soaring to over a three-year high of 6.55 per cent in February and retail inflation climbing to 3.65 per cent due to rise in food and fuel prices.
The equity markets remained unmoved by the widely expected decision. The barometer 30-scrip sensitive index (Sensex) of the BSE traded at 29 861.07 points (at 2.30 p.m.). It recovered slightly to 29 927.47 points (at 2.40 p.m.) -- down only 46.77 points or 0.16 per cent from the previous close at 29 974.24 points.
The wider 51-scrip Nifty of the National Stock Exchange (NSE) traded at 9 247.90 points (at 2.40 p.m.) -- down 17.25 points or 0.19 per cent. It traded at 9 229.25 points at the time of the announcement at 2.30 p.m.
--IANS
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RBI maintains key lending rate, narrows policy corridor (Second Lead)
