RBI keeps repo rate unchanged at 6 percent, stance stays at 'neutral'

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The policy repo rate is kept unchanged at 6%, which is the lowest since November 2010.

The Monetary Policy Committee (MPC) headed by RBI Governor Urjit Patel said that growth rate will accelerate to 7.4 percent in 2018-19, up from 6.6 percent last fiscal, ended March 31, mainly on account of revival of investment activity.

The central bank's six-member Monetary Policy Committee (MPC) in its bi-monthly Monetary Policy Statement, noted that the April-June GDP growth is seen at 7.1 percent, and the July-September GDP growth is seen at 7.4 percent.

GDP growth is projected to strengthen from 6.6% in FY18 to 7.4% in FY19 in the range of 7.3-7.4% in H1FY19 and 7.3-7.6% in H2FY19 with risks evenly balanced, the central bank said on Thursday. Repo rate is used by monetary authorities to control inflation.

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"Ongoing normalisation of interest rates in the United States, higher global crude oil prices, and the looming threat of escalation in global trade war warranted a cautious approach".

This is especially important given the reduced ability of banks to undertake corporate lending as RBI's new NPA (non-performing asset) Resolution Framework, though structurally positive, will push up lenders' credit costs and undermine capital adequacy.

The state-run bank index jumped 4.9 percent and the main market index closed up 1.94 percent.

But many economists doubt whether that pace can be sustained. This marks a reduction from its February forecast of 5.1 percent to 5.6 percent in the first half and 4.5 percent to 4.6 percent in the second half.

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The decision helped extend a rally in the bond market, triggered last week by the government's decision to cut its first-half borrowing plans and after the RBI on Monday allowed lenders to spread their debt market losses over four quarters.

Rajesh Shah, Ficci President, said: "While the Reserve Bank of India has maintained status quo in current monetary policy statement, we hope that RBI will soon consider cut in policy rate and give a further boost to demand and investments".

While inflation fears have eased in the short term, the RBI sounded cautious and opted to wait for more data instead of giving a clear indication of its policy path.

"However, MPC looks ahead".

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In its February policy review meeting, the MPC, in its hawkish approach, had kept repo rate unchanged at 6 per cent.