News Worms
News Worms

RBI aims to keep retail inflation near 4% on 'durable basis'

RBI aims to keep retail inflation near 4% on 'durable basis'

The repo rate, at which RBI lends to banks, is now down to 6 per cent, the lowest in more than six years.

The RBI Governor headed, six member Monetary Policy Committee also chose to keep the policy stance neutral in consonance with the objective of achieving the medium-term target for consumer price index inflation of 4 per cent.

Vineet Relia, Managing Director, SARE Homes feels 25 bps reduction in the repo rate will go hand in hand with favorable government measures like RERA and GST which will boost housing demand benefiting both developers and buyers. Yes Bank MD and CEO Rana Kapoor said: "India's inflation has undergone a structural shift, with the emergence of "new normal" at lower levels".

Radhika Rao, economist at Singapore-based DBS Bank, said the neutral policy stance "will allow the RBI to be noncommittal on the future course of action, retaining the flexibility to react to the evolving inflation trajectory".

Between January 2015 and May 2017, the weighted average lending rates (WALR) on fresh loans (captures the incremental change in loan rates) have fallen by about 160 bps, as against the 175 bps cut in repo rate.

At the third bi-monthly monetary policy meeting, policymakers voted to lower the repo rate to 6.00 percent from 6.25 percent. The rate cut is the first by RBI since a similar cut in October 2016.

Retaining a cautious stance could cause tension with a government keen to lift the economic growth from January-March's 6.1 percent - fast by global standards but the lowest in over two years.

The central bank also lowered its reverse repo rate-the rate at which it borrows money from commercial banks-by 0.25 percentage point to 5.75%.

Following the June monetary policy decision, Chief Economic Advisor Arvind Subramanian felt the central bank had overstated the risks on inflation, noting the inflation outlook has been benign, while growth in the economy has decelerated along with slowdown in private investment, credit growth and gross capital formation.

The MPC has also made a decision to keep the policy stance neutral and to watch incoming data with a view to keeping headline inflation close to 4 per cent.

The RBI said easing prices had provided "some space" for monetary policy accommodation: inflation is now well below the RBI's 4% target and its projection of 2.0%-3.5% in April-September.

Industrial growth, however, remains weak and needs policy support, corporate leaders say.

Good monsoon should keep food inflation under check.


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