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21 April
2017
 |
R.B.I (The Total Investment & Insurance
Solutions)
Citing
upside risks to inflation from price pressures as the main reason for keeping
its key interest rate unchanged earlier this month, the RBI's monetary policy
committee (MPC) said there is room for banks to further cut interest rates,
minutes of the MPC meeting on April 5-6, released on Thursday, showed. The Total Investment & Insurance Solutions
At
its first bi-monthly policy review of the 2017-18 fiscal, the RBI preferred to
maintain status quo on its repurchase (repo) rate, or the short-term lending
rate it charges on borrowings by commercial banks, saying it awaited further
macroeconomic data before deciding on any changes. The Total Investment & Insurance Solutions
"After
moderating continuously over the last six months to a historic low, retail
inflation measured by year-on-year changes in the consumer price index (CPI)
turned up in February to 3.7 per cent," according to the minutes of the
MPC meeting.
"While
food prices bottomed out at the preceding month's level, base effects pushed up
inflation in this category. Importantly, inflation excluding food and fuel has
exhibited persistence and has been significantly above headline inflation since
September 2016," it said.
Although
committe member and RBI Executive Director Michael Patra favoured an increase
in the repo rate by 25 basis points as a pre-emptive move to check inflationary
pressures, at the end the six-member MPC unanimously decided to maintain status
quo.
In
the monetary policy statement, the RBI said risks are evenly balanced around
the inflation trajectory at the current juncture. "There are upside risks
to the baseline projection," it said.
"Inflation
developments have to be closely and continuously monitored, with food price
pressures kept in check so that inflation expectations can be re-anchored. At
the same time, the output gap is gradually closing. Consequently, aggregate
demand pressures could build up, with implications for the inflation
trajectory," it added.
RBI
Governor Urjit Patel told the MPC that "the outlook for inflation calls
for close vigilance" and there is room for banks to further cut interest
rates.
"There
is still room for banks to cut lending rates. For efficient transmission, it is
important that interest rates on small savings are not out of line with
interest rates on other comparable instruments in the financial system,"
Patel said. The Total Investment & Insurance
Solutions
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