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Indian central bank maintains policy rate

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Indian central bank maintains policy rate

The monetary policy committee of the Reserve Bank of India decided to keep its policy rates unchanged as growth weakens and inflation rises.

The bank kept the repo rate at 6.0% and the reverse repo rate at 5.75% while the marginal standing facility rate and the bank rate stayed at 6.25%. Five members of the committee voted to keep the policy rate steady, while one voted for a rate reduction of 25 basis points. At its August meeting, the RBI reduced the repo rate by 25 basis points, its first cut in 10 months, despite maintaining a neutral policy bias.

According to the central bank, the country's real gross value added growth decelerated significantly in the first quarter in 2017-2018, with the manufacturing sector expanding by 1.2%, the lowest in the last 20 quarters. The index of industrial production improved slightly in July after a contraction in the previous month while the services sector purchasing managers' index registered a continued contraction as new orders fell in August. The Reserve Bank also noted that the introduction of the Goods and Services Tax have had an adverse effect on the manufacturing sector. The bank's forecast for growth for 2017-18, measured by real gross value added, has been scaled down to 6.7% from 7.3%

Consumer price inflation has advanced by about 2 percentage points since the central bank's last meeting. The RBI expects inflation to increase from its current level and range between 4.2% to 4.6% in the second half of 2017.