The Reserve Bank left its benchmark lending rate, Repo rate, unchanged at 6(point)25 per cent for the fourth monetary policy review in a row today citing upside risk to inflation.
RBI however increased the reverse repo rate — which it pays to banks for parking funds with it — by 0.25 per cent to 6 per cent, narrowing the policy rate corridor. The Marginal Standing Facility, on the other hand, has been revised downwards by 0.25 per cent to 6.5 per cent. MSF is RBI’s lending rate for banks against government securities.
RBI said in its first bi-monthly monetary policy review of 2017-18 that given the upside risks to inflation and excess liquidity in the system, the repo rate has been retained at 6.25 per cent.
The RBI Governor Dr. Urjit Patel said the policy decisions are unanimous.
On the gross value add (GVA) basis, RBI sees the economy accelerating to 7.4 per cent in the current fiscal, up from 6.7 per cent in 2016-17. The monetary authority however said it is worried on three fronts with regard to inflation as well as the economy. The first stems from a possible El Nino impact on the monsoon.
The second worry arises from the GST implementation, while the third upside risks to inflation comes from the 7th pay commission award, according to the Monetary Policy Committee.
On the downside factors, it said, international crude prices have been easing recently and their pass-through to domestic prices of petroleum products should alleviate pressure on headline inflation. Also, it added, stepped-up procurement operations in the wake of the record production of foodgrains will rebuild buffer stocks and mitigate food price stress.