MUMBAI: As widely expected by analysts and the financial markets as a whole, the Monetary Policy Committee (MPC) decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged 6 per cent.
Consequently, the reverse repo rate under the LAF remains at 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.25 per cent.
“The decision of the MPC is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth,” the Reserve Bank of India (RBI) official statement said.
The MPC has considered the factors such as the global economic activity, the trends in emerging markets, the crude oil prices, inflation outlook, the new trend in global trade equations, etc. before arriving at the conclusion.
While five members of MPC voted for status quo in the policy rates, one member voted for an increase of 25 basis points in the rates. The MPC reiterates its commitment to achieving the medium-term target for headline inflation of 4 per cent on a durable basis.
The MPC further noted that growth has been recovering and the output gap is closing. This is also reflected in a pick-up in credit off-take in recent months. “The large mobilisation of resources from the primary capital market should support investment activity further. While the domestic cyclical recovery is underway, the long-term growth potential is also expected to be reinforced by various structural reforms introduced in the recent past,” the MPC noted.
On the downside, the MPC observes, the deterioration in public finances risks are crowding out private financing and investment. “Furthermore, even as global growth and trade have been strengthening, rising trade protectionism and financial market volatility could derail the ongoing global recovery,” it expressed fear.
In this unsettling global environment, it is especially important that domestic macroeconomic fundamentals are strengthened, deleveraging of distressed corporates and rebuilding of bank balance sheets persisted with, and the risk-sharing markets deepened