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The Reserve Bank of India today kept the repo rate unchanged at 6 percent and hiked the reverse repo rate by 25 basis points to 6.25 percent. Repo is the rate at which RBI loans short term funds to banks, and reverse repo is the rate at which RBI borrows from banks.
Here are the key things you need to know about the policy:
Inflation seen averaging 4.5 percent in the first half of this year and 5 percent in the second half. This is above the 4 percent which the RBI is targeting.
Strengthening of the global economy could lift commodity prices, and that in turn push up domestic inflation.
Weak monsoon, hikes to central government staff under 7th Pay Commission, farm loan waivers are the key risks to inflation.
Record high foodgrain production and bumper crop of pulses should help keep food inflation in check if the stock is managed well.
Economy estimated to grow 7.4 percent this year, versus an estimated 6.7 percent last year.
Remonetisation, government spending, lower interest rates, GST, should drive economic growth.
Industrial growth is slowly recovering, but there is still excess capacity in the system.
Bullish outlook on growth and an anti-inflation stance means there may not be any rate cuts in the near future.
With demonetisation curbs easing, the surplus funds in the banking system will reduce as depositors withdraw their money.
But with credit growth weak, the system liquidity will be on the higher side.
The RBI will shortly come out with a comprehensive plan to fix the bad loan problem, and also revive credit growth.
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