In first review since note ban, RBI keeps policy rate unchanged at 6.25 per cent; growth forecast cut to 7.1 per cent

The Reserve Bank of India (RBI) today kept the key lending rates at 6.25 per cent during the last monetary policy review of the calendar year 2016. The reverse repurchase rate now also automatically stands lowered to 5.75 per cent.
File pic of RBI Governor Urjit Patel - India TV
India TV Business Desk Mumbai December 07, 2016 23:22 IST

In an unexpected move, the Reserve Bank of India (RBI) today kept key lending rates unchanged at 6.25 per cent during the last monetary policy review of the calendar year 2016.

The RBI Governor Urjit Patel-led six-member Monetary Policy Committee (MOC), which had in its first policy review cut interest rate by 0.25 per cent in October, voted in favour of today's decision.

In view of disruption in economic activities due to demonetisation, the central bank also lowered the growth forecast from 7.6 per cent to 7.1 per cent for the current fiscal.

The headline inflation is projected at 5 per cent by the fourth quarter of 2016-17 with risks tilted to the upside but lower than in the October policy review. 

The fuller effects of the house rent allowances under the Seventh Pay Commission award are yet to be assessed, pending implementation, and have not been reckoned in this baseline inflation path, the fifth bi-monthly monthly monetary policy said. 

On demonetisation, the RBI said that the withdrawal of old high value currency notes could transiently interrupt some part of industrial activity in November-December due to delays in payments of wages and purchases of inputs, although a fuller assessment is awaited. 

"In the services sector, the outlook is mixed with construction, trade, transport, hotels and communication impacted by temporary old currency notes effects, while public administration, defence and other services would continue to be buoyed by the 7th Central Pay Commission (CPC) award and one rank one pension (OROP)," it added. 

The central bank also said that almost Rs 12 lakh crore out of total Rs 14.5 lakh crore in scrapped notes have already been deposited in banks. 

RBI has also withdraw 100 per cent incremental Cash Reserve Ratio (CRR) from December 10, a move that would allow banks to retain the deposits coming to them as part of demonetisation. 

Following are the highlights of RBI's fifth bi-monthly monetary policy statement, 2016-17: 

- Repo rate unchanged at 6.25%, Reverse Repo at 5.75% 

- Cash reserve ratio or CRR unchanged at 4% 

- Cuts growth forecast to 7.1%, from 7.6% for this fiscal 

- Inflation target remains 5% for March 2017, upside risk 

- Demonetisation to lower prices of perishables, could reduce inflation by 10-15 basis points by December 

- All MPC members voted in favour of status quo in policy 

- Demonetisation to result in short-run disruptions in cash-intensive sectors 

- Crude price volatility, surge in financial market turbulence could put March end inflation target at risk 

- Foreign exchange reserve rose to all-time high of USD 364 billion on December 2 


- RBI injected Rs 1.1 lakh crore liquidity through OMO purchases this fiscal 

- Next monetary policy on February 8

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