RBI retains economic growth projection at 6.7 per cent for FY'18

RBI retains economic growth projection at 6.7 per cent for FY'18

RBI retains economic growth projection at 6.7 per cent for FY'18

The RBI has also left the reverse repo rate under the LAF unchanged at 5.75 per cent and marginal standing facility (MSF) rate and the Bank Rate at 6.25 per cent.

The Reserve Bank of India (RBI) kept its key interest rate unchanged at 6.25. "The recent rise in global crude oil prices may sustain, especially on account of the OPECs decision to maintain production cuts through next year", RBI said. The central bank's Monetary Policy Committee (MPC) voted 5:1 in favour of status quo.

The RBI pointed to several factors that could push inflation higher. There is a risk that this upward trajectory may continue in the near-term. That's low by Indian standards, but not far from the central bank's 4 percent target.

It also expected the impact of the house rent allowance (HRA) to the central government employees to peak during December, following the 7th Pay Commission award. In such a scenario, any adverse supply shock due to geo-political developments could push up prices even further.

In the wake of the low GDP numbers in the April-June quarter, there was a growing demand in the market that the RBI should cut rates so that investment activity in the economy would grow.

The central bank is also likely to be concerned that the government may have a wider fiscal deficit in the fiscal year ending in March than the 3.2 percent target, raising the prospect New Delhi may have to sell more bonds.

In a Bloomberg survey, most of the economists said that the repurchase rate will stay at 6 per cent, whereas only a few economists predicted a rate cut of.25 per cent. "However, incoming data versus the RBI's projections will remain key".

Ratings agency ICRA, in a study, said: "Although the CPI inflation or retail inflation for October is lower than the range of 4.2 per cent to 4.6 per cent for the second half of FY18 that the MPC had forecast in its previous review, and the recent revision in GST rates would ease price pressures, certain inflation risks persist". We maintain our call that the RBI will be on a pause in the near term.

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