Mumbai, Feb 7: Barely a week after the release of Union Budget 2018-19, the Reserve Bank of India (RBI) presented the 6th bi-monthly monetary policy report for the quarter today. The repo rate -- or the rate at which the RBI lends to other banks -- has been kept unchanged at 6 per cent. The reverse repo rate also remains the same at 5.76 per cent.

The Marginal Standing Facility Rate or MSF has also been kept the same as 6.75 percent, as announced in the last quarter. The MSF rate is the interest charge by the central bank on overnight or urgent loan advances to the commercial banks.

The inflation for the fourth quarter of FY17-18 is pegged at 5.1 per cent by the RBI. The monetary policy report has taken note of the sharp rise in fuel prices for the month of January, which it credits to the surge in crude oil rate.

The RBI sees the inflation linked to consumer price index (CPI) rise to 5.1-5.6 per cent between April to October 2018. "This is due to the roll-out of the HRA linked to 7th Pay Commission, rising crude oil prices, and a possible good monsoon," RBI Governor Urjit Patel said.

In the second half of FY18-19, however, the RBI monetary policy projects a lower inflation rate. "The CPI inflation will come down to 4.5-4.6 per cent between October 2018 to March 2019, largely due to settling of the GST mechanism," Patel added.

The Gross Value Growth has been down slided from 6.7 to 6.6 per cent for this fiscal. "This is expected to rise to 7.2 percent in FY-2019," the RBI Governor said.

Repo Rate Unchanged at 6%

A large section of the economists were of the view that the RBI would not tinker with the repo rate at this stage. Out of 15 economists who participated in a survey conducted by The Mint, 14 believed that the RBI would stick to the repo rate.

The same opinion was reflected by the six-member monetary policy committee (MPC), with five voting in favour of keeping the repo rate unchanged, whereas, one recommending a hike by 25 basis point or 0.25 per cent.

There is also a possibility of the RBI adopting a hawkish approach in the near-future. The lending rate may be hiked in view of the increasing money in circulation, factored by the implementation of 7th Pay Commission recommendations, increase in minimum support prices (MSP) for farmers and weakening of fiscal deficit among others.

Inflation projected at 5.1-5.6 per cent between Apr-Oct 2018

The inflation forecast is factored by the spiralling fuel prices, roll-out of 150 per cent MSP hike on Kharif farm produce, relaxation in fiscal deficit and the impact of House Rental Allowance (HRA) linked to 7th Pay Commission.

A "good monsoon", as the RBI Governor said, would increase the disposable income of the farmers. This in turn would push the CPI inflation upwards.

What else?

Commenting o the state of investment, the monetary policy report says that signs of revival are clear.

With global demand improving, the RBI notes, export growth is likely to pick pake.

The domestic credit growth is likely to accelerate with the ambitious recapitalisation of public sector banks initiated by the government, the report adds.

On investment, the RBI said it is likely to revive in the coming fiscal. However, three out of the five taxes imposed on long-term capital gains may cause a negative impact.

(The above story first appeared on LatestLY on Feb 07, 2018 02:45 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).