India cenbank leaves policy rate unchanged, cuts inflation projection

Marcus Newton
June 7, 2017

RBI cut projected headline inflation in the range of 2-3.5% from earlier 4.5% for the first half of this fiscal.

According to data furnished by the Ministry of Statistics and Programme Implementation under a new series April retail inflation rate based on the Consumer Price Index (CPI) was lower than 5.47 per cent recorded during April a year ago. The Twelve economists polled by the Business Standard ruled out a rate cut by the central bank'.

"The growth of real gross value added (GVA) for 2016-17 has been pegged at 6.6 per cent, 0.1 percentage point lower than the second advance estimates released in February 2017", RBI said.

The RBI also reduced banks statutory liquidity ratio requirement to 20%, with effect from June 24, from 20.5%.

According to media reports, the Met Department, on Tuesday, has upgraded its monsoon rains forecast to 98 per cent of long-term period average from 96 per cent estimated in April.

The government has been pressing for a cut in interest rates to increase private investment and had sought a meeting with the members of the Monetary Policy Committee, but RBI Governor Urjit Patel said that all of them declined to meet.

Even then, an influential section from the government likes to believe that the RBI has not thought enough about high interest rates and is reluctant to make use of whatever the comfortable fiscal situation and inflation has provided.

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At the same time, inflation based on the wholesale price index slipped to a four-month low of 3.85 per cent in April as both food articles and manufactured items showed cooling in prices.

At the current juncture, global political and financial risks materialising into imported inflation and the disbursement of allowances under the 7th central pay commission s award are upside risks, it said.

India's economy grew a slower-than-expected 6.1 percent in the January-March quarter, its slowest pace in more than two years and down from 7 percent in the previous quarter, although analysts expect growth to accelerate this year.

At its last policy review in April, the RBI had kept the key lending rate unchanged but narrowed its policy corridor and hiked the reverse repo rate to six per cent.

The bank's statement said that it did not anticipate a major impact from the rollout of the Goods and Services Tax on July 1.

The equity markets remained unmoved by the RBI decision.

Other reports by MaliBehiribAe

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