The Reserve Bank of India on Thursday kept the policy rate unchanged at 6.25 per cent. It has projected inflation at 4.5 per cent for the first half of 2017-18 and 5 per cent for the second half. The GDP growth has been projected at 7.4% for the current fiscal, up from 6.7% in 2016-17.
It is for the third consecutive time that the central bank has kept the rates unchanged guarding against any potential flare-up in inflation and an uncertain global economic environment.
Announcing the decisions taken at the policy review, RBI Governor Urjit Patel said that the bank is focused on removing the liquidity overhang in the system and finely align money market rates with policy rates.
“There was a surge in liquidity in the system after demonetisation that RBI had to absorb,” the RBI Governor said.
“We have provided clarity on how we see liquidity conditions evolve. We will manage the new drivers of liquidity in this fiscal,” he added.
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Patel said that the MPC believes that inflation developments have to be closely and continuously monitored, with food price pressures kept in check so that inflation expectations can be re-anchored. He further added that there is scope for transmission of rates.
“The GVA growth is projected to strengthen to 7.4 percent in 2017-18 from 6.7 percent in 2016-17, with risks evenly balanced,” added Patel while quoting that the banks have reduced lending rates, although further scope for a more complete transmission of policy impulses remains, including for small savings/administered rates.
“The Marginal standing facility (MSF) rate and the Bank Rate is reduced to 6.50 percent from 6.75 percent with no significant impact on bond markets,” added Patel.
MPC says that volatility in crude oil prices and its lagged pass-through are impacting the trajectory of CPI inflation excluding food and fuel.