The Reserve Bank of India (RBI) today kept interest rates unchanged but hinted that monetary conditions are likely to remain tight because of rising risks to inflation.
It raised its March-end Consumer Price Index (CPI) inflation forecast to 5.1% and projected an inflation range of 5.1-5.6% in the first half of the next fiscal year.
The monetary policy committee of the central bank decided to keep repo rate—at which the RBI infuses liquidity in the banking system—on hold at 6%.
The inflation outlook is “clouded by several uncertainties.” The the staggered impact of housing rent allowance increases by the state government, rising prices of crude oil and other commodities owing to a pick-up in global growth, increase in minimum support prices (MSPs) for kharif crops, the budget’s hike in custom duties are some of the factors which signal the “need for vigilance around the evolving inflation scenario in the coming months.”
On growth, the RBI has cut the growth projections for the current fiscal to 6.6% from 6.7% earlier. For the next financial year, it has projected gross value added (GVA) growth of 7.2%.
A stabilising goods and services tax (GST) regime, improving credit offtake, rising capital goods production and recapitalisation of banks mean well for growth.
