RBI keeps rates unchanged, Sensex down over 200 points

December 07, 2016 14:47

The RBI has left the Repo rate unchanged at 6.25 percent, reverse Repo Rate U/LAF at 5.75%.

Other announcements made by the RBI:

* Withdrawal of incremental cash reserve ratio imposed recently on Rs 3.24 lakh crore of deposits, from the fortnight starting December 10.

* Retail inflation to be 5 per cent in fourth quarter of current fiscal

* Expected growth -- measured by GVA -- to come in at 7.1 percent in FY17, down from its earlier 7.6 percent forecast.

* Demonetisation can bring down Consumer Price Index

The RBI policy statement further says:

"The decision of the MPC is consistent with an accommodative stance of monetary policy in consonance with the objective of achieving consumer price index inflation at 5 per cent by Q4 of 2016-17 and the medium-term target of 4 per cent within a band of +/- 2 per cent, while supporting growth."

"The outlook for GVA growth for 2016-17 has turned uncertain after the unexpected loss of momentum by 50 basis points in Q2 and the effects of the withdrawal of specified bank notes, which are still playing out."

"Downside risks in the near term could travel through two major channels: (a) short-run disruptions in economic activity in cash-intensive sectors such as retail trade, hotels & restaurants and transportation, and in the unorganised sector; (b) aggregate demand compression associated with adverse wealth effects. The impact of the first channel should, however, ebb with the progressive increase in the circulation of new currency notes and greater usage of non-cash based payment instruments in the economy, while the impact of the second channel is likely to be limited."

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