India’s central bank kept its key interest rates unchanged for the fourth straight meeting, on Thursday, and downgraded its inflation projections
At the first bi-monthly monetary policy session, the Monetary Policy Committee of the Reserve Bank of India decided to hold the repo rate at 6.00 percent, the lowest since 2010.
The reverse repo rate was retained at 5.75 percent. The bank had lowered the rates by 25 basis points at its meeting in August 2017.
Five members including Governor Urjit Patel voted to keep rates on hold, while Michael Patra sought a quarter point rate hike. The MPC reiterated its commitment to keep headline inflation at 4 percent.
The central bank also slapped a ban on banks from providing services to cryptocurrency investors. Further, the bank asked banks to end their existing relationship with individuals and firms dealing in cryptocurrencies within three months.
On the growth front, the bank said several factors are expected to accelerate the pace of economic activity in 2018-19.
Citing revival in investment activity and global demand, GDP growth is projected to strengthen to 7.4 percent in 2018-19 – in the range of 7.3-7.4 percent in the first half and 7.3-7.6 percent in the second half. The economy had expanded 6.6 percent in 2017-2018.
The bank revised down its inflation forecast for the first half of 2018-19 to 4.7-5.1 percent from 5.1-5.6 percent and the outlook for the second half to 4.4 percent from 4.5-4.6 percent.
According to the RBI, food inflation should remain under check on the assumption of a normal monsoon and effective supply management. On current assessment, domestic demand is expected to strengthen during the course of the year.
With growth strengthening and core price pressures rising, Shilan Shah at Capital Economics, said policy tightening will commence in the second half of this year. The repo rate will be hiked by 75 basis point to 6.75 percent over the next 12 months, the economist said.
The central bank cautioned that rising trade protectionism and financial market volatility could derail the ongoing global recovery.