RBI maintains status quo, keeps repo rate unchanged at 6.5%

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The central bank said that several uncertainties, including the risk of sudden reversal in food prices, uncertain outlook on crude oil prices and possible fiscal slippage, were clouding the inflation outlook.

The repo rate is the rate at which the RBI lends short-term money to the banks.

On the basis of an assessment of the current and evolving macroeconomic situation at its meeting, the Reserve Bank of India (RBI) chose to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.5 per cent.

Besides CRR, Banks have to invest certain percentage of their deposits in specified financial securities like Central Government or State Government securities. The 10-year government bond yield closed at 7.441%, a level last seen on 13 April, from its previous close of 7.573%.

In its last monetary policy in October, RBI had maintained status quo on the benchmark interest rate but warned that volatile and rising oil prices, and tightening of global financial conditions pose substantial risks to the growth and inflation.

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The so-called statutory liquidity ratio (SLR) now stands at 19.50 per cent and the move to lower the SLR should prod banks to lend more rather than park their cash in safe-haven government securities. In October, inflation eased to 3.31 percent.

Since then the RBI's pause on rates has been in contrast to other Asian central banks, including South Korea, Philippines and Indonesia, that have raised rates. For the first half of 2019-20, the GDP growth has been projected at 7.5 percent.

India's GDP slowed to 7.1 percent in the September quarter even as retail inflation dropped to a one-year low of 3.31 percent in October.

The RBI has cut the inflation projection for second half of FY19 to 2.7%-3.2%.

But, there are now clearer economic reasons for India to avoid going higher, analysts say. Economists suggested that the RBI kept its stance unchanged as it may be too early to alter its stance. PM Modi's government has faced criticism over the distress among farmers and small businesses.

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