RBI keeps rate unchanged

Source: The Hitavada      Date: 08 Feb 2018 10:26:22



THE Reserve Bank of India (RBI) on Wednesday kept interest rates unchanged for the third time in a row saying that higher Government spending would accelerate inflation, and warned of risks from wider fiscal deficit.

The 6-member Monetary Policy Committee (MPC), headed by RBI Governor Urjit Patel, retained the repurchase or repo
rate at 6 per cent and reverse repo rate at 5.75 per cent.
It kept a neutral stance at its 6th and the last bi- monthly monetary policy review of the current fiscal, 2017-18.
Inflation, which surged to a 17-month high of 5.21 per cent in December, is likely to accelerate further after Budget for 2018-19 widened fiscal deficit target so as to finance higher rural spend and mega healthcare plan.

“We are still awaiting some of specifics on that in terms of costing it... We have said that there could be impact but we have not said how much,” Patel said. “There is not enough information at the moment about what the costing would be.” The Union Budget 2018-19 would stoke demand but worsening public finances may crowd out private funding and investment, RBI said in a statement.

RBI upped its inflation forecast to 5.1 per cent for the current fourth quarter of the 2017-18 fiscal ending March 31. It expects inflation to firm up further to 5.1-5.6 per cent in first half of the next fiscal, before cooling down to 4.5-4.6 per cent in the second half.