Maintains status quo on Rate: ?As expected, the RBI kept its policy rate on hold after the end of its monetary policy meet on Wednesday in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. The policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.5 per cent. Consequently, the reverse repo rate under the LAF remains at 6.25 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.
Repo rate is the rate at which banks borrow short-term funds from the Reserve Bank of India.
Reduction in SLR by 0.25%: In the current meet RBI lowered SLR that is currently stands at 19.50 percent by 25 bps and maintained its stance at ‘calibrated tightening’. Target would be lowering the SLR by 25 basis points each quarter until it reaches 18 percent.
Intact on GDP Projection: Based on an overall assessment, GDP growth for 2018-19 has been projected at 7.4 per cent.
Lowered retail inflation projection: Retail inflation projection in the range of 2.7-3.2 per cent for the second half of the current fiscal, citing normal monsoon and moderate food prices.
Retail loans to be linked to external benchmarks: Since April 2016, interest rates on all loans have been linked to MCLR. Before that, they were linked to banks’ base rates. Now Retail loans to be linked to external benchmarks, not MCLR, starting April 2019; the decision comes after multiple observations by the RBI that banks have been slow in passing on cuts in policy rates to those borrowing from them. The final guidelines on the decision will be issued by end of December.
The next meeting of the MPC is scheduled from February 5 to 7, 2019.