February 8, 2018
New Delhi: The Reserve Bank of India, meeting amid a global market storm, kept its key rate on hold on Wednesday in view of firming inflation.
The 6-member Monetary Policy Committee (MPC), headed by RBI Governor Urjit Patel, favoured pausing the Repo Rate at 6 percent and the Reverse Repo Rate at 5.75 percent. Five out of the 6-member MPC voted in favour of the rate pause.
The Central Bank retained its “neutral” stance, seeking to support a slowing economy. RBI has held the repo at 6 percent since a 25 bps cut in August, having taken advantage of a period of extraordinary low inflation to cut rates by 200 bps since early 2015.
Retail inflation crossed the RBI’s comfort level and rose to 5.21 percent in December on increase in prices of food items. The retail inflation, based on Consumer Price Index CPI), was 4.88 percent in November. In December 2015, it was 3.41 percent.
Inflation is expected to accelerate after the government`s budget last week widened its fiscal deficit target for the fiscal year starting in April to help finance a sharp increase in spending in the rural areas and on healthcare.
Bond investors are already pricing in rate hikes, with benchmark 10-year bond yields rising over 80 basis points since July, the biggest move since the 2013 rupee crisis.