India Monetary Policy April 2017

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India: Central Bank holds policy rate, narrows corridor

April 6, 2017

The Reserve Bank of India (RBI) decided to keep monetary policy unchanged at a scheduled meeting on 5-6 April, matching market analysts’ expectations. The RBI held the repo rate at 6.25%—an over five-year low. All six members of the monetary policy committee voted to keep the rate unchanged. However, the Bank decided to narrow its interest rate corridor to better align call rates with the repurchase rate. Accordingly, the marginal standing facility rate (Bank Rate) was lowered 25 basis points to 6.50% and the reverse repurchase rate was raised 25 basis points to 6.00%.

The narrowing of the interest rate corridor was done to manage the current surplus liquidity in the banking system and limit the downward pressure on inter-bank rates, in line with the RBI’s neutral stance. Meanwhile, the uneven inflation outlook this year, but positive growth prospects, where behind the unchanged repo rate decision. The Bank stressed that upside risks and unfavorable base effects will kick into effect in the second half of the year and that developments will be closely monitored.

Looking forward, the RBI reaffirmed a neutral tone and stated that any changes in the monetary policy stance will likely be data driven. The Bank also stressed that it will continue to monitor liquidity conditions and monitor stressed assets in the banking system. The next monetary policy meeting is scheduled for 6-7 June.

Our panelists project that the repurchase rate will average 6.22% at the end of FY 2017. For FY 2018, panelists see the repurchase rate ending the year at 6.20%.


Author: Angela Bouzanis, Senior Economist

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India Monetary Policy Chart


India Monetary Policy April 2017

Note: Marginal Standing Facility (MSF) Rate, Repo Rate and Reverse Repo Rate in %.
Source: Reserve Bank of India (RBI).


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