Keeping up with the expectations, the Monetary Policy Committee (MPC), headed by Reserve Bank Governor Urjit Patel, today decided to keep the key policy rates unchanged. While the repo rate will remain at current 6.25 per cent, reverse repo rate has also been kept unchanged at 6.00 per cent. The RBI, however, decided to cut the statutory liquidity ratio by 50 basis points.
The RBI has projected inflation in 2-3.5 per cent range for first half of 2017-18 and 3.5-4.5 per cent for second half. The Goods and Services Tax (GST), which the government plans to implement from July 1, is not expected to have any material impact on overall inflation, the central bank said.
It has, however, cut the growth projection for current fiscal to 7.3 per cent, from 7.4 per cent.
Amid the farmers' demand of loan waivers in Madhya Pradesh and Maharashtra, the apex bank has cautioned against "rush of farm loan waivers," warning of risk on fiscal slippages and inflationary spillovers.
Retail inflation, based on Consumer Price Index (CPI),dropped to multi-year low at 2.99 per cent in April over last year, mainly due to lower cost of food items, including pulses and vegetables. CPI inflation was 5.47 per cent in April 2016.
At the same time, inflation based on the wholesale price index slipped to a four-month low of 3.85 per cent in April as both food articles and manufactured items showed cooling in prices.
The government has been making a case for a lower interest regime citing low inflation. India Inc. was also pitching for a rate cut to boost GDP growth that fell to 7.1 per cent in 2016-17 from 8 per cent in the previous fiscal.
Finance Minister Arun Jaitley had said inflation has been under control for long and is likely to remain so on the back of good monsoon and unlikely spike in oil prices.
On April 6, the Reserve Bank had left its benchmark lending rate unchanged at 6.25 per cent for the third monetary policy review in a row, citing upside risk to inflation.