RBI maintains status quo: Key takeaways from fifth bi-monthly policy meet

Lloyd Doyle
December 5, 2018

The Reserve Bank of India (RBI) kept the key policy rates unchanged in its fifth bi-monthly policy announced on Wednesday. Five out of the six-member Monetary Policy Committee (MPC) voted in favour of keeping the repo rate unchanged at 6.50 percent and the reverse repo rate at 6.25 percent.

The monetary policy committee maintained the policy stance to "calibrated tightening". And, the reverse repo rate is the rate at which the RBI borrows money from commercial banks. Moreover, the central bank had said in its October policy that a rate cut was off the table. However, it announced statutory liquidity ratio (SLR) will go down by 25 bps every quarter from January.

SLR lowered to align with Liquidity Coverage Ratio: In order to align the SLR with the LCR requirement, the MPC chose to reduce the SLR by 25 basis points every calendar quarter until the SLR reaches 18 per cent of Net Demand and Time Liabilities (NDTL).

The RBI, however, lowered inflation forecast sharply for the second half (six months) of 2018-19 to 2.7 per cent-3.2 per cent. Currently, SLR stands at 19.5 percent.

The RBI also announced an auction of a 12-day Government of India Cash Management Bill.

RBI also retained the GDP growth projection for FY19 at 7.4 percent.

RBI changed the policy stance to "calibrated tightening" from "neutral", while affirming its commitment to achieve the medium-term objectives to contain price rise.

What could be RBI's likely rate action?

After back-to-back hikes since June, the RBI had kept interest rates unchanged in October, surprising markets that had expected a rate hike to support the tumbling rupee and combat inflationary pressures from high oil prices.

Tuesday said it would inject Rs 10,000 crore into the system through the purchase of government securities on December 6 to increase liquidity.

Other reports by Iphone Fresh

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