The Reserve Bank of India lowered the key interest-rate peg by a quarter percentage point to 6% as expected but retained it neutral stance saying it would remain on guard as price pressures may return amid global peers unwinding their unprecedented monetary stimulus.
While inflation as measured by the Consumer Price Index fell to a record 1.54% in June, the monetary policy committee (MPC) was worried that the impact of the Goods & Services Tax and revival of food price pressures could lift the inflation gauge.
RBI retained the economic growth forecast for 2017-18 at June 2017 projection of 7.3% and said trajectory of inflation in the baseline projection is expected to rise from current lows. The MPC remains focused on its commitment to keeping headline inflation close to 4% on a durable basis while it had earlier lowered inflation forecast in fiscal first half to 2 to 3.5% per and 3.5-4.5% in the second half.
"The inflation excluding food and fuel has fallen significantly over the past three months, the monsoon is normal along with the smooth roll-out of the GST has opened up for monetary policy accommodation," RBI Governor Urjit Patel said.
A minority that included IDFC Bank, Care Ratings, and Au Small Finance Bank bet on a “status quo ante”, assuming that unsustainably low consumer prices and uncertainties surrounding the single producer levy limit the ability of policy rates in reviving consumption demand in the broader economy.
(Inputs from ET)
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