RBI keeps policy rate on hold for third meeting in a row

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However, the experts believed that the central bank is likely to hold the rate tomorrow while unveiling the first bi-monthly review of 2017-18 in view of hardening inflation.

Banking shares recovered as RBI increased the reverse repo, the rate at which RBI borrows money from banks by 25 basis points to 6.00 per cent, narrowing the gap between the repo and the reverse repo to 25 bps.

The central bank last cut the interest rate in October when it was reduced by 25 basis points to 6.25 per cent, the lowest level since November 2010, and analysts don't expect a rush towards another snip.

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The government nominees on the Committee are Chetan Ghate, professor at the Indian Statistical Institute; Pami Dua, Director, Delhi School of Economics and Ravindra H Dholakia, professor at IIM-Ahmedabad, while RBI nominees are the Governor, Deputy Governor in-charge of monetary policy Viral A Acharya and Executive Director. The increase will encourage banks to lend more to the RBI, thereby helping to mop up their excess liquidity.

The RBI has rightly made a decision to not go over-board and resorted to much feared measures like hike in Cash Reserve while leaving the policy interest rates unchanged is on the expected lines, the apex body said. It has a target of keeping inflation around four per cent.

Avnish Jain, Head - Fixed Income, Canara Robeco: "As expected, the RBI kept key repo rate unchanged at 6.25 percent and policy stance "neutral". RBI indicated that it is committed to bring down liquidity to neutral and will use tools like MSS and OMO to manage liquidity. One of the highlights of today's policy was the decision to allow banks to invest in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (INVITs) within the 20 percent umbrella limit. Owing to better liquidity, the cost of capital for developers in the commercial segment will come down in the future.

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RBI has projected inflation at 4.5 per cent for first half of 2017-18 and 5 per cent for the second half of the year.

However, it raised the reverse rate to 6 per cent from 5.75 percent.

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