RBI keeps interest rates unchanged; MPC says activity in cash-intensive retail trade, unorganised segments largely restored

Mumbai, Apr 6 (KNN) The Reserve Bank of India (RBI) today kept the repo rate unchanged at at 6.25 per cent after six members of the Monetary Policy Committee voted in favour of the monetary policy decision.

The reverse repo rate under the LAF is at 6.0 per cent, and the marginal standing facility (MSF) rate and the Bank Rate are at 6.50 per cent.

The MPC said, “The future course of monetary policy will largely depend on incoming data on how macroeconomic conditions are evolving. Banks have reduced lending rates, although further scope for a more complete transmission of policy impulses remains, including for small savings/administered rates.”

According to the First Bi-monthly Monetary Policy Statement, 2017-18, “GVA growth is projected to strengthen to 7.4 per cent in 2017-18 from 6.7 per cent in 2016-17, with risks evenly balanced.

The statement said several favourable domestic factors are expected to drive this acceleration.

First, the pace of remonetisation will continue to trigger a rebound in discretionary consumer spending. Activity in cash-intensive retail trade, hotels and restaurants, transportation and unorganised segments has largely been restored.

Second, significant improvement in transmission of past policy rate reductions into banks’ lending rates post demonetisation should help encourage both consumption and investment demand of healthy corporations.

Third, various proposals in the Union Budget should stimulate capital expenditure, rural demand, and social and physical infrastructure all of which would invigorate economic activity.

Fourth, the imminent materialisation of structural reforms in the form of the roll-out of the GST, the institution of the Insolvency and Bankruptcy Code, and the abolition of the Foreign Investment Promotion Board will boost investor confidence and bring in efficiency gains.

Fifth, the upsurge in initial public offerings in the primary capital market augurs well for investment and growth.

MPC further said the global environment is improving, with global output and trade projected by multilateral agencies to gather momentum in 2017. Accordingly, external demand should support domestic growth.

The next meeting of the MPC is scheduled on June 5 and 6, 2017. (KNN Bureau)