RBI policy review: Repo rate unchanged at 6 pc

10 factors that will impact RBI’s decision in first monetary policy review 2018-19

A man shows Rs 2000 notes in front of the Reserve Bank of India headquarter

In its first bi-monthly monetary policy, RBI has asked all banks to cut ties with any individual or businesses that deal with any form of virtual currencies and do so by stopping services to such accounts within a three-month timeline.

It is worth noting that the leading Indian banks including the HDFC, AXIS, YES, ICICI and Kotak Mahindra Bank have already stopped a slew of their services to cryptocurrency exchanges and other entities and traders.

That said, an unchanged repo rate - the rate at which banks borrow from the RBI - dashed hopes of further lowering of borrowing costs for households and companies. "Consequently, the reverse repo rate under the LAF remains at 5.75 percent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.25 percent", RBI said in a statement.

Five of six members on the monetary policy committee (MPC) voted for a hold, while one wanted to raise the repo rate.

Inflation concerns have eased substantially in recent weeks following a crash in vegetable prices, which are expected to keep price pressures soft for the next few months. On the global front, the RBI assessed the potential trade wars, the advancing USA economy, a buoyant Euro Zone, and growth of the Japanese economy in eight straight quarters till Q4:2017. The benchmark lending rate was reduced by 0.25 percentage points to 6 per cent last August, bringing it to a 6-year low. Accordingly, inflation in the fourth quarter of FY2017-18 is now projected at 4.5 per cent.

RBI seemed confident on growth prospects and suggested that the "output gap is closing" although it mentioned downside risks on global trade protectionism, market volatility and weak domestic public finances.

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The Economic Survey tabled in Parliament on January 29, had estimated that India would re-establish itself as the world's fastest-growing major economy with GDP expanding by 7-7.5% in 2018-19.

But many economists doubt whether that pace can be sustained.

For the second half 2018-'19, it has predicted an inflation outlook of 4.4%, lower than its last forecast of 4.5% to 4.6%.

Excluding the impact of HRA revisions, CPI inflation is projected at 4.4-4.7% in H1:2018-19 and 4.4% in H2. "However, MPC looks ahead".

However, RBI reiterated its neutral stance on its policy outlook due to several uncertainties surrounding the baseline inflation path including the revised minimum support price (MSP) announced in the budget and the possible fiscal slippages at the level of both centre and states.

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