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RBI maintains status quo, cuts growth forecast to 6.7%

Mumbai: The Reserve Bank on Wednesday kept interest rate unchanged as was widely expected in view of upward trend in inflation even as it cut the growth forecast to 6.7 per cent for the current fiscal.

Consequently, the repo rate, at which it lends to banks, will stand at 6 per cent. The reverse repo, at which RBI borrows from banks will continue to be at 5.75 per cent, it said at the fourth bi-monthly policy review.
In its last review in August, it had slashed the benchmark lending rate by 0.25 percentage points to 6 per cent, the lowest in 6 years.
"The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth," RBI said in its fourth policy review of 2017-18.
The six-member monetary policy committee voted 5:1 for the decision, with only Ravindra Dholakia voting for a 0.25 per cent reduction in rates.
The Reserve Bank of India (RBI) said that after a record low in June, inflation is trending up and estimated the headline number to touch 4.6 per cent by the March quarter.
"The MPC (Monetary Policy Committee) decided to keep the policy stance neutral and monitor incoming data closely. The MPC remains committed to keeping headline inflation close to 4 per cent on a durable basis," it said.
On growth, it cut its 2017-18 forecast by gross value added (GVA) basis to 6.7 per cent from 7.3 per cent earlier.
"The loss of momentum in Q1 of 2017-18 and the first advance estimates of kharif foodgrains production are early setbacks that impart a downside to the outlook. The implementation of the GST so far also appears to have had an adverse impact, rendering prospects for the manufacturing sector uncertain in the short-term," RBI said.
The MPC said structural reforms introduced in the recent period will likely be growth augmenting over the medium-to-long-term by improving the business environment, enhancing transparency and increasing formalisation of the economy.

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