RBI leaves repo rate unchanged at 6.25%; FY2018 growth projected at 7.4%

S V Krishnamachari
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Deposit and lending rates are not going to change for the time being, with the Reserve Bank of India's (RBI) apex decision-making body, the MPC, unanimously deciding to prefer the status quo.

"On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.25 per cent," the RBI said in a statement after the end of the two-day meeting on Thursday (April 6).

Retail inflation for 2017-18 is projected at 4.5 per cent in the first half and 5 per cent in the second half.

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The central bank's economic growth estimate (GVA) for 2017-18 is 7.4 percent as against 6.7 per cent for 2016-17.

Stock markets bounced back after the announcement, with the Sensex trimming its losses to 61 points at 29,913 while the NSE Nifty was trading at 9,246, recovering from 9,232.

Earlier, the stock markets were trading with minor losses ahead of the MPC's announcement. The BSE Sensex was down 108 points to 29,866 while the NSE Nifty was trading 33 points lower at 9,232. Top Sensex losers were ITC, ICICI Bank, Adani Ports and Coal India. The BSE Bankex, representing bank stocks, was also marginally down by 0.32 per cent.

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The rupee opened at 65.05 to the US dollar on Thursday after closing at 64.87 the previous day.

DBS Bank economist Radhika Rao had expected the RBI to leave the repo rate unchanged.

"No change in the repo rate from the current 6.25% is on the cards. Since their shift to a neutral stance from accommodative back in February, we take stock of the risks that were highlighted...The modest uptick in inflation and better growth prospects will reinforce their decision to maintain a neutral stance," she wrote in her note three days ago.

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Brokerage Nirmal Bang Institutional Equities had also hinted at status quo.

"Global risks to inflation have slightly receded with the fall in global commodity prices. However, domestic risks to inflation have slightly increased with the uptrend in food prices and uncertainty over the monsoon even as core inflation (excluding food and fuel inflation) remains sticky. Therefore, on balance, we believe the RBI will keep key rates on hold, particularly given the reversal in its stance from 'accommodative' to 'neutral'," it said in a note on Thursday, ahead of the RBI's announcement.

In a significant development on the political front, an upbeat BJP was in for disappointment, ironically on its foundation day, when the Supreme Court said that the party's leaders L K Advani, Murli Manohar Joshi and others should face trial for criminal conspiracy in the Babri Masjid demolition case. The apex court also said that the trial could be held in the Lucknow court and should be completed in two years.

The next meeting of the MPC is scheduled on June 5 and 6, 2017.

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