Report rate, reverse repo rate remain unchanged

Daniel Fowler
December 6, 2018

It said the projected inflation path remains unchanged after adjusting for the HRA impact of central government employees as this impact dissipates completely from December 2018 onwards. It noted that although Q2 growth was lower than that projected in the October policy, GDP growth in H1 has been broadly along the line in the April policy.

The RBI cut its inflation projection to 2.7-3.2 per cent for the second half (October 2018-March 2019), with risks tilted to the upside, against 3.9-4.5 per cent projected earlier.

On balance, the MPC was of the view that incoming data will help ascertain the durable nature of the recent inflation softening and allow better judgment on future policy action. The next meeting of the MPC is scheduled from February 5-7, 2019.

RBI's new liquidity management framework incorporates an SLR reduction by 25 bps every quarter until the SLR reaches 18% of net demand and time liabilities (NDTL). LCR is the amount of high-quality liquid assets that banks have to set aside to meet short-term obligations.

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At present, the Cash Reserve Ratio (CRR) balance of banks at the end of the day is being disclosed with a lag of 2-3 days, while the details of the currency in circulation are being released with a lag of one week. CRR is the amount of funds that banks have to keep with the central bank as a proportion of their deposits.

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. The central bank has already done OMOs worth ₹1.36 trillion in this financial year and has announced a further tranche of ₹40,000 crore.

"We expect interest rates to be on hold until March", said A Prasanna, head of research at ICICI Securities Primary Dealership in Mumbai."We also expect the tone of the statement to be dovish given inflation and growth momentum have softened, and the RBI will continue to keep infusing liquidity as bank lending growth needs to be supported to boost overall economic growth". The marginal standing facility (MSF) rate and the Bank Rate stand at 6.75 per cent.

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