The Reserve Bank of India on Wednesday left repo rates ( the rate at which the RBI lends to banks) unchanged at 6 per cent, even as it retained economic growth projection for 2017-18 at 6.7 per cent. The Monetary Policy Committee’s fifth bi-monthly review, headed by RBI Governor Urjit Patel, also raised the inflation forecast for the remainder of the current financial year to 4.3-4.7 per cent.
Explaining its move, the six-member committee said the reason for its decision was “achieving medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth”, reported PTI. The RBI said the government’s farm loan waiver, partial roll back of duty on fuel and reduction in GST rates on several items might result in fiscal slippage. On the positive side, RBI said there had been some pick up in credit growth in recent months.
The RBI said the second quarter growth was lower than the one projected in the October review, and the recent increase in oil prices might have a negative impact on margins of firms and Gross Value Added (GVA) growth. “The projection of real GVA growth for 2017-18 of the October resolution at 6.7 per cent has been retained, with risks evenly balanced,” the central bank said.
The RBI also kept the reverse repo rate unchanged at 5.75 percent. To boost digital payments, RBI said it had decided to rationalise charges on debit card transactions. RBI deputy governor Viral Acharya also said liquidity conditions were normalising gradually. “Overhang of liquidity surplus in banking system forced withdrawal of specific bank notes in Nov 2016, touching a peak of close to Rs 7.96 trillion at the year’s beginning but now it has come down,” Acharya said.
In October, the government announced a Rs 2.11 lakh crore recapitalisation plan to deal with huge bad loans and Non-performing assets (NPAs) at state-run lenders. Welcoming the move, Urjit Patel said the recapitalisation would be accompanied with a reform package to ensure the problems do not recur. “Bank recapitalisation plan is a reform as well as recap package,” the RBI Governor said.
While there has been weaknesses in some areas of the services sector such as real estate, the RBI survey projected the services and infrastructure sectors would turn a corner and see an improvement in demand, financial conditions and the overall business situation in the fourth quarter.