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RBI leaves key rate unchanged; retains growth forecast at 6.7%

16:30 HRS IST

Mumbai, Dec 6 (PTI) Deterred by inflationary concerns,
the Reserve Bank on Wednesday kept the policy rate unchanged
leaving little scope for banks to lower interest rates on
housing and auto loans.

It raised the inflation estimate to 4.3-4.7 per cent,
from the earlier projection of 4.2-4.6 per cent, for the
second half of the current financial year.

However it retained the growth forecast at 6.7 per cent
for 2017-18 even through the gross value added (GVA) in the
second quarter rose to 6.3 per cent.

The 6-member Monetary Policy Committee (MPC), headed by
Reserve Bank of India (RBI) Governor Urjit Patel, in its 5th
bi-monthly review in the current fiscal, kept repo rate
unchanged at 6 per cent and reverse repo at 5.75 per cent.

It said the reason for the decision was “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”.

RBI factored in the Housing Rent Allowance (HRA) effect
of up to 35 basis points, with risks evenly balanced,
following the implementation of the 7th Pay Commission
recommendations for central government employees.

The impact of HRA is expected to peak in December.

However, the staggered impact of HRA increases by various
state governments may push up housing inflation further in
2018, it said.

Expecting price situation to harden, it said: “The
moderation in inflation excluding food and fuel observed in Q1
of 2017-18 has, by and large, reversed. There is a risk that
this upward trajectory may continue in the near-term.”

The recent rise in international crude oil prices may
sustain, especially on account of the OPEC s decision to
maintain production cuts through next year, it said.

It further said that the implementation of farm loan
waivers by select states, partial roll back of excise duty and
VAT in the case of petroleum products, and decrease in revenue
on account of reduction in Goods and Services Tax rates for
several goods and services may result in fiscal slippage with
attendant implications for inflation.

Of the six, one member, Ravindra H Dholakia, voted for a
policy rate reduction of 25 basis points.

The MPC decided to continue with the neutral stance and
watch the incoming data carefully. The next meeting of the MPC
is scheduled on February 6 and 7.

The MPC remains committed to keeping headline inflation
close to 4 per cent on a durable basis.

Although the RBI status quo on the key rate was on
expected lines, the BSE Sensex closed 205.26 points or 0.63
per cent down at 32,597.18.

News credit : Ptinews

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