India: Reserve Bank holds repurchase rate steady
June 7, 2016
The Reserve Bank of India (RBI) decided to keep the repurchase rate unchanged at an over-five-year low of 6.50% at a scheduled meeting on 7 June. The decision was widely expected by market analysts. In addition, the Bank decided to keep the marginal standing facility rate (Bank rate) unchanged at 7.00% and the reverse repurchase rate steady at 6.00%.
In the accompanying statement, the Bank outlined that the decisions came against a backdrop of uneven growth across economies amid geo-political tensions and financial market volatility. Regarding the domestic economy, while growth picked up the final quarter of fiscal year 2015, economic prospects hinge on the level of the monsoon. Concerning prices, inflation jumped up in April, thus adding uncertainty to the trajectory going forward. Although the expectations of a normal monsoon should support lower food inflation, there are upside risks to the inflation outlook. Specifically, the Bank commented that rising commodity prices and a hike in public sector salaries are adding an upside bias to their inflation projection. Against this backdrop, the Bank decided to keep the repurchase rate unchanged.
In its forward guidance, the RBI stuck to a dovish tone, maintaining an accommodative stance. The next scheduled policy meeting is on 9 April.