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Last updated: 05 Dec, 2018  

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SME Times News Bureau | 05 Dec, 2018

The Reserve Bank of India (RBI) on Wednesday kept its key lending rate for commercial banks unchanged at 6.5 per cent for the second time in succession.

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 6.5 per cent, the RBI said in a statement.

Consequently, the reverse repo rate under the LAF remains at 6.25 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent, it added.

Since the last MPC meeting in October 2018, global economic activity has shown increasing signs of weakness on rising trade tensions, the bank said.

Economic activity also decelerated in major emerging market economies (EMEs) in Q3, it added.

However, the bank viewed Crude  oil  prices  have  declined  sharply,  reflecting  higher  supplies  and  easing  of  geo-political  tensions.

According to the RBI, even as inflation projections have been revised downwards significantly and some of the risks pointed out in the last resolution have been mitigated, especially of crude oil prices, several uncertainties still cloud the inflation outlook.

"The MPC noted that the benign outlook for headline inflation is driven mainly by the
unexpected softening of food inflation and collapse in oil prices in a relatively short period of time," Patel said at the post-meeting press conference.

"Excluding food items, inflation has remained sticky and elevated, and the output gap
remains virtually closed."

As per the review statement, based on an overall assessment, GDP growth for 2018-19 has been projected at 7.4 per cent (7.2-7.3 per cent in H2) as in the October policy, and for H1:2019-20 at 7.5 per cent, "with risks somewhat to the downside".

"The MPC also noted that even as escalating trade tensions, tightening of global financial conditions and slowing down of global demand pose some downside risks to the domestic economy, the decline in oil prices in recent weeks, if sustained, will provide tailwinds," Patel said.

In addition, the RBI's decision subdued the two key equity indices -- S&P BSE Sensex and NSE Nifty50 -- which traded in the red just minutes after the monetary policy review statement was released.

The BSE S&P Sensex traded lower by over 200 points, while the wider NSE Nifty50 fell by over 86 points.

On the steps to increase liquidity, RBI announced a reduction of SLR (Statutory Liquidity Ratio) from the current 19.5 per cent of net demand and time liabilities (NDTL) to 18 per cent over a period of six quarters starting from the January-March 2019 quarter.

 
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