Home » Business & Economy » Repo rate unchanged: RBI's monetary policy statement gives mixed signals
 

Repo rate unchanged: RBI's monetary policy statement gives mixed signals

Neeraj Thakur | Updated on: 6 December 2017, 21:14 IST
(PTI)

The Reserve Bank of India on Wednesday kept the repo-rate unchanged at 6% in its fifth bi-monthly policy review of the current fiscal. The decision was on expected lines as a majority of surveys from various agencies had predicted a status quo on the policy rates. A total of 52 of 54 economists surveyed by a Reuters poll had expected a status quo on the policy rate.

In its review, the RBI drew a bleak picture for the ongoing quarter for the economy. The central bank in its report said that rabi sowing “in Q3 has so far been marginally lagging behind the acreage sown during the comparable period of the previous year. Precipitation since October has remained at around 13% below the long period average”.

Though there is some positive news on pulses. The sowing of pulses has increased significantly as compared with a year ago, “partly reflecting the impact of lifting of the export ban for all varieties of pulses,” the RBI said.

On industry, the RBI said that economic indicators “suggest a mixed picture of industrial activity” for third quarter.

“Core industries growth was flat in October as all constituents barring steel and fertilisers slowed down sequentially. Coal mining, which revived strongly in Q2, slowed down too, while cement production contracted,” said the RBI.

The central bank is also of the view that “the recent increase in oil prices may have a negative impact on margins of firms and GVA (Gross Value Added) growth. Though, the RBI is hopeful about November as the Purchasing Managers’ Index (PMI) for manufacturing, which fell in October, rebounded in November, driven by output and new orders,” the RBI said.

On the services sector, the RBI said, “Activity has remained mixed in October. In the transportation sector, sales of commercial vehicles decelerated; those of passenger vehicles and two wheeler turned into contraction mode. By contrast, domestic and international air passenger and freight traffic, and railway freight expanded robustly. The Reserve Bank’s survey suggests that sentiments on service sector activity for Q3 are upbeat and auto sales have rebounded in November. On the other hand, PMI for services moved into contraction zone in November.”

Hope for the future

In the medium term, RBI has a positive outlook for the country as it believes that “capital raised from the primary capital market has increased significantly after several years of sluggish activity”. The capital raised will be used for new projects, and “will add to demand in the short run and boost the growth potential of the economy over the medium-term".

Passing on benefits to consumers

Even though RBI has refrained from reducing the repo rate for the second consecutive bi-monthly review, it is of the view that commercial banks have the scope to reduce the rate of interest for consumers.

“MPC notes that the impact of these factors (IPOs, Ease of Doing Business rankings and bankruptcy code) can be buttressed by reducing the cost of domestic borrowings through improved transmission by banks of past monetary policy changes on outstanding loans,” said RBI.

First published: 6 December 2017, 21:14 IST
 
Neeraj Thakur @neerajthakur2

सीनियर असिस्टेंट एडिटर, कैच न्यूज़. बिज़नेसवर्ल्ड, डीएनए और बिज़नेस स्टैंडर्ड में काम कर चुके हैं.

PREVIOUS STORY
NEXT STORY