RBI Keeps Interest Rates Unchanged With Repo Rate At 6.5%, Reverse Repo At 6.25% And Bank Rate At 6.75%

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New Delhi: With the Reserve Bank of India (RBI) projecting the Gross Domestic Production (GDP) for 2019-20 at 7.4 per cent while Inflation projection of second half of 2018-19 is 2.7-3.2 per cent, the bank has kept the key interest rates unchanged with the Repo rate at 6.5 per cent, Reverse repo rate at 6.25 per cent and bank rate at 6.75 per cent.

Investors were watching how RBI chief Urjit Patel would respond to the state’s push for more say over the central bank’s role. Economic Secretary Subhash Chandra Garg, a government representative on the RBI’s board, has called for the bank’s governance structure to be changed and panels set up to oversee its functioning.

Having raised the interest rates twice this year, the RBI keep its repurchase rate unchanged at 6.5 percent. This decision is bound to appease the government, which is seeking more support for banks to continue lending.

Since the last meeting in October, liquidity in the financial system has declined, forcing lenders to raise rates. Some of the reasons include sales tax payments to the government, a seasonal pick-up in loans and intervention by the central bank in the foreign-exchange market to prop up the rupee.

The RBI may seek to assure investors about liquidity conditions by stepping up bond purchases and pumping more cash into the system. The central bank -- which has limited its bond purchases to 400 billion rupees ($5.7 billion) a month since October -- is expected to increase that to 500 billion rupees a month in the March quarter, according to Indranil Sen Gupta, an India economist at Bank of America Merrill Lynch.

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