RBI leaves interest rate unchanged at 6 per cent

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Policy repo rate under liquidity adjustment facility has been kept unchanged at 6.0 percent.Consequently, reverse repo rate under the LAF remains at 5.75 percent and marginal standing facility rate and the Bank Rate at 6.25 percent. The banking sector stocks entered a negative territory ahead of the RBI's monetary policy decision as the stock market opened on Wednesday. The RBI kept its growth forecast for the current fiscal year ending March 31 unchanged at 6.7 per cent. RBI however raised inflation forecast to 4.3-4.7 per cent in third and fourth quarters of current fiscal. "Moderation in inflation excluding food and fuel observed in Q1 of 2017-18 has, by and large, reversed".

The RBI is likely to show its concerns over rising inflation, which was 3.58 per cent in October. The central bank's Monetary Policy Committee (MPC) voted 5:1 in favour of status quo.

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Fuel inflation, which has been on an upward trajectory since July, accelerated due to an increase liquefied petroleum gas (LPG), kerosene, coke and electricity prices. Supply chains have been broken and growth stayed below potential following the roll out of a new consumption tax and Prime Minister Narendra Modi's withdrawal of high-value currency notes, pushing his advisers to seek lower borrowing costs even as global central banks tighten. "Second, the impact of HRA by the Central Government is expected to peak in December", the RBI said. The central bank had reduced the benchmark lending rate by 0.25 percentage points to 6% in August, bringing it to a 6-year low, however, kept it unchanged in October.

Ratings agency ICRA, in a study, said: "Although the CPI inflation or retail inflation for October is lower than the range of 4.2 per cent to 4.6 per cent for the second half of FY18 that the MPC had forecast in its previous review, and the recent revision in GST rates would ease price pressures, certain inflation risks persist". "However, incoming data versus the RBI's projections will remain key".

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