Announcing the fifth bi-monthly review, the Reserve Bank of India (RBI) on Wednesday kept the key interest rate unchanged, on expected lines, but raised the inflation forecast for remainder of the current financial year to 4.3-4.7 per cent for the last two quarters of the financial year.
The six-member Monetary Policy Committee (MPC), headed by RBI governor Urjit Patel, kept repo rate unchanged at six per cent and reverse repo at 5.75 per cent. It said the reason for the decision was "achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- two per cent, while supporting growth".
However, he said that there is a visible pick up in credit growth and as economy improves, credit demand will rise with enough supply to meet the increased demand.
The central bank retained its earlier gross value added growth forecast at 6.7 per cent for the financial year 2017-18.
RBI said that implementation of farm loan waivers by a few states, partial roll back of excise duty and VAT on petroleum, in addition to decrease in revenue due to reduction in GST rates may result in fiscal slippage with attendant implications for inflation.
The RBI governor said that the central bank is working closely with finance ministry on bank recapitalisation plan. He added that recap bonds will be front-loaded for those public lenders who have worked to keep their balance sheets healthy. "PSU bank recapitalisation will be a reform and recap package and not just a recap package... don't want to sow steps for next boom and bust cycle," Patel stated.
