The Reserve Bank of India on Wednesday decided to keep interest rates unchanged, in line with market expectations. The repo rate remains at 6% and the reverse repo rate at 5.75%. The repo rate is the interest rate at which the central bank lends to banks, and the reverse repo rate is the rate at which it borrows from banks.
The central bank’s Monetary Policy Committee last revised its repo rate in its August 2017 meeting, when it reduced it from 6.25% to 6%. The six-member panel meets every two months.
In its monetary policy statement released on Wednesday, the central bank has predicted retail inflation at 5.1% for January-March 2018. In its previous meeting, it had slightly raised its forecast for inflation during October 2017-March 2018 to 4.3-4.7%. But then, in December 2017, retail inflation in India rose to a 17-month high of 5.21%, which was above the RBI’s target of 4%.
The panel noted that the economy was recovering but warned that the “nascent recovery” should be “carefully nurtured”. It called the Union Budget’s focus on rural and infrastructure sectors a “welcome development”, but said the risks to fiscal deficit could also hit private investment.
After the government raised its fiscal deficit target for 2018-’19 on February 1, inflation is expected to accelerate further, as a higher fiscal deficit means more public spending. The central bank raises interest rates to keep inflation in check.
The central bank pegged a growth in Gross Value Added – GVA – at 6.6% in 2017-’18 and 7.2% in 2018-’19. An economy’s GVA measures the total value of all goods and services it produces.