RBI MPC’s decision is on expected lines as inflation has surprised on the upside, remaining above the upper tolerance level of 6% for seven straight months now
NEW DELHI: The Reserve Bank of India (RBI) on Friday decided to unanimously keep key interest rates unchanged while keeping an accommodative stance. As per the decision of the central bank’s Monetary Policy Committee (MPC), the policy repo rate, the benchmark at which RBI lends to banks, will stay at 4%, RBI Governor Shaktikanta Das said in a televised address. The reverse repo rate will continue to be 3.35%.
The MPC’s decision is on expected lines as inflation has surprised on the upside, remaining above the upper tolerance level of 6% for seven straight months now. Supply-side factors, such as unseasonal rains, labour shortages, higher services prices, higher commodity prices and higher taxes have contributed to a spike in both headline and core inflation.
India's retail inflation rose to the highest level in October in more than six years on account of elevated food prices. According to Consumer Price Index (CPI) data released by the Ministry of Statistics and Programm Implementation, inflation stood at 7.61% in October — the highest since May 2014. Retail inflation recorded at 7.27% in September, according to data. The Consumer Food Price Index (CFPI) jumped to 11.07% in October, up from 10.68% in September.
The main factor leading to higher inflation was elevated food inflation. In October, inflation in meat and fish rose to 18.7% while vegetable prices increased to 22.51%.
A Mint survey had shown 10 economists to be unanimous in their view that the RBI committee will maintain repo rate at 4% along with the accommodative policy stance.
The signs of recovery are far from being broad-based, Das said. "Further efforts are necessary to mitigate supply side inflation pressures.
He said the committee's accommodative stance will stay as it is, this financial year and into the next financial year. This has to be done to keep inflation within the RBI's targeted range of 4% plus/minus 2%.