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RBI keeps repo rate unchanged at six per cent

06 December 2017

The decision on Wednesday would be aimed at striking a balance between strengthening the country's economic growth and securing the retail inflation target of 4 percent, plus or minus 2 percent on a durable basis, stated Scotiabank.

The central bank said its repurchase rate, or the short-term lending rate for commercial banks, has been maintained at 6 per cent. Further, global policy rate cycle and commodity prices along with consolidated fiscal position will keep the RBI cautious.

The Reserve Bank of India on Wednesday left rates unchanged at 6 per cent.

Another source of RBI discomfort is that core inflation, which excludes food and energy prices, has remained stubbornly high at around 4.5 percent. Another factor it could take into account is the rise in crude prices to $61.60 per barrel at the end of November from $55.36 in October, analysts have been reported to have said. In August, the bank had cut repo rate by 25 basis points.

It also expected the impact of the house rent allowance (HRA) to the central government employees to peak during December, following the 7th Pay Commission award.

Repo rate is the rate at which banks the RBI lends to other banks and is considered the key policy rate. 42 of 48 economists in a Bloomberg survey had also expected the repo rate to be kept steady.

GDP growth had slumped to a three-year low of 5.7% in the June quarter.

The Indian economic growth recovered to 6.3 percent year-on-year in the third quarter from the previous quarter's 5.7 percent growth, slightly coming below the market projection of 6.4 percent.

"I. vote for status quo, but only as long as inflation readings stay within the target of 4%".

However, most economists don't expect the RBI to raise rates in this meeting as a precautionary measure because it could hamper the ongoing economic recovery.

On the positive side, RBI said there has been some pick up in credit growth in recent months. "Bank recapitalisation bonds would be front-loaded", RBI governor added.

RBI keeps repo rate unchanged at six per cent