The Monetary Policy Committee of the Reserve Bank of India has voted to keep rates on hold, citing inflation and improved growth prospects for the economy. The MPC released a statement saying that while inflation was expected to be marginally more than envisaged in October 2017, growth as measured by gross value added (GVA) would improve to 7 per cent and 7.8 per cent in Q3FY18 and Q4FY18 respectively.
Consequentially, the policy repo rate remains unchanged at 6 per cent and the reverse repo rate at 5.75 per cent. The RBI, in its fifth bi-monthly policy statement, said several significant recent developments augur well for growth. Banks, however, need to buttress them by passing on earlier rate cuts to borrowers. The apex bank has also eased funding for top corporates by allowing Indian banks to refinance external commercial borrowings of AAA-rated corporates and top public sector units classified as Navratnas and Maharatnas through their overseas offices.
It had raised its inflation forecast by 10 basis points in its policy. “In arriving at this decision, the MPC took note of upward pressure on evolving cost of living conditions and rising input costs conditions, which pose risks of pass-through in retail prices,” said RBI governor Urjit Patel. The decision to keep rates on hold has also been visibly affected by steady inflation expectations. All three members from the RBI in the MPC, Patel, deputy governor Viraj Acharya, and executive director Michael Patra, voted to hold rates. External members, Chetan Ghate and Pami Dua supported the decision, while Ravindra H Dholakia voted for a policy rate reduction of 25bps.
Dinabandhu Mohapatra, MD, Bank of India, said,” For banks, credit growth is slightly higher than deposit growth, signalling an end to easy liquidity conditions. Taking a cue, some banks increased rates on wholesale deposits.” He also said that higher global growth carried the risks of upward movement in commodity prices, which was not really good news for a major oil importer like India.
