Deterred by inflationary concerns, the Reserve Bank on Wednesday kept the policy rate unchanged leaving little scope for banks to lower interest rates on housing and auto loans.It raised the inflation estimate to 4.3-4.7 per cent, from the earlier projection of 4.2-4.6 per cent, for the second half of the current financial year.
However it retained the growth forecast at 6.7 per cent for 2017-18 even through the gross value added (GVA) in the second quarter rose to 6.3 per cent.The 6-member Monetary Policy Committee (MPC), headed by Reserve Bank of India (RBI) Governor Urjit Patel, in its 5th bi-monthly review in the current fiscal, kept repo rate unchanged at 6 per cent and reverse repo at 5.75 per cent.
It said the reason for the decision was “achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth”. RBI factored in the Housing Rent Allowance (HRA) effect of up to 35 basis points, with risks evenly balanced, following the implementation of the 7th Pay Commission recommendations for central government employees.
The impact of HRA is expected to peak in December.