Mumbai, December 7: Reserve Bank of India (RBI) has kept repo rate under the liquidity adjustment facility (LAF) unchanged at 6.25%. As the repo rate is not changed therefore the reverse repo rate under the LAF remains unchanged at 5.75%, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.
Like to tell you that after the demonetization this is the first RBI’s monetary policy. The Monetary Policy Committee (MPC) is chaired by RBI Governor Urjit Patel with six committee members in it on Wednesday. Meanwhile it was largely predicted by many know economists and banks that the RBI will lower the repo rate. But the RBI has not changed the repo rate.
The decision of the MPC is consistent with an accommodative stance of monetary policy in consonance with the objective of achieving consumer price index (CPI) inflation at 5 percent by Q4 of 2016-17 and the medium-term target of 4 percent within a band of +/- 2 percent, while supporting growth.
A cut in the repo rate would have ideally brought down banks' borrowing costs, eventually leading to lower loan rates for companies and individuals. Therefore, it was expected to help revive private investments in an atmosphere where short-term growth is likely to be impacted. Still, lending rates may yet come down as the withdrawal of the additional cash reserve ratio requirement will bring down the cost of funds for banks.
The RBI today also lowered the GDP growth estimate to 7.1 per cent in 2016-17 from the earlier projection of 7.6 per cent. The RBI clearly is playing the long game by targeting inflation instead of taking measures to address the short-term impact on GDP due to the scrapping of high value notes. And leaving the repo rate unchanged has nothing to do with the forthcoming US Federal Reserve decision, RBI said.
Later in the press conference, RBI Governor Urjit Patel answered to various questions and said that Salary rise under the 7th pay commission has not been disruptive for inflation. He also said that looking to the conditions RBI ha also withdrawn incremental Cash Reserve Ration (CRR).
On demonetization, Urjit clearly stated that it is not just a fundamental trust deficit, most people think it is a good decision as it fights fake currency, black money and terrorism. He further said that both RBI & central government are conscious of immediate difficulties for public various efforts are made to mitigate them.
Whereas Deputy Governor RS Gandhi stated that the decision of demonetisation was not made in haste, but after detailed deliberation. He also stated that in the process high level of secrecy was maintained. He also said that old notes worth Rs 11.55 lakh crore recovered after demonetization.