The Reserve Bank of India (RBI) kept its policy repo rate unchanged at six per cent on Thursday for the fourth straight meeting and stuck to its ‘neutral’ stance as expected to support an early recovery in economic growth as inflation eases.
The reverse repo rate was also unchanged at 5.75 per cent in the first bi-monthly monetary policy of financial year 2018-19 . Five of six members on the rate setting monetary policy committee voted to stand put, while one voted for a hike.
With the economy recovering from reforms such as demonetisation and GST undertaken last year, RBI projected the GDP growth at 7.4 per cent in 2018-19 from 6.6 per cent in 2017-18. RBI said that there are now clearer signs of revival in investment activity "as reflected in the sustained expansion in capital goods production and still rising imports". But it added the recent volatility in crude prices has imparted considerable uncertainty to the near-term outlook.
The central bank revised its projected retail inflation for 2018-19 to 4.7-5.1 per cent in the first half and 4.4 per cent in the second half, with risks tilted to the upside. With the sharp moderation in food prices in February-March, the inflation trajectory in first half of 2018-19 is expected to be lower than the projection in the February statement. However, it added that "further fiscal slippage from the Union Budget estimates for 2018-19 or the medium-term path could adversely impact the outlook on inflation".
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"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 RBI," the central bank stated.
The central bank also cautioned against rising trade protectionism and financial market volatility that could derail the ongoing global recovery, despite growth and trade strengthening around the world.