Published: Thu, December 06, 2018
Money | By Ralph Mccoy

RBI keeps repo rate unchanged at 6.5%, lowers inflation forecast sharply

RBI keeps repo rate unchanged at 6.5%, lowers inflation forecast sharply

Mumbai: India's central bank kept interest rates unchanged for a second straight meeting as inflation and economic growth slowed in Asia's third-largest economy.

RBI said inflation in the second half of the current fiscal is projected at 2.7-3.2 per cent.

According to Section 7 (1) in The Reserve Bank of India Act, 1934, "The Central Government may, from time to time, give such directions to the RBI as it may after consultation with the Governor of the Bank consider necessary in the public interest".

Earlier in its bi-monthly monetary policies review held in June and August 2018, the central bank had raised the repo rate by 25 basis points (bps). Five out of the six-member Monetary Policy Committee (MPC) voted in favour of keeping the repo rate unchanged at 6.50 percent and the reverse repo rate at 6.25 percent. The RBI and the government have been locked in a dispute in recent weeks over the central bank's role, with the state pushing for more say over the RBI's functions.

A pause in rate hikes is a welcome relief for Prime Minister Narendra Modi's ruling party as it prepares for an election that must be called by May.

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Data released a few days ago showed the economy suffered an unexpectedly sharp slowdown in the July-September quarter, when annual growth slid to 7.1 percent from the two- year high of 8.2 percent posted in the previous quarter. But, it also foresaw inflation picking up again, projecting a rate of between 3.8-4.2 per cent in the first half of fiscal 2019/20, with risks tilted to the upside.

The rupee eased to 70.60 to the dollar from 70.50 before the policy statement, while the broader Nifty was down 0.8 percent at 3:39 pm.

"Inflation is likely to pick up later next year mostly driven by food balanced against some beneficial effect of lower commodity prices", said Prachi Mishra, India chief economist at Goldman Sachs, in Mumbai.

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