The Reserve Bank of India (RBI) decided to keep its policy rate on hold in its first bi-monthly monetary policy review for 2017-18, citing the challenging inflation outlook. The apex bank, however, proposed a mechanism to resolve the weakest bank balance sheets under a revised ‘prompt corrective action’ framework. This is the third successive quarterly review in which the central bank has kept its policy rate unchanged at 6.25 per cent. For 2017-18, the RBI sees inflation averaging 4.5 per cent in the first half of the year and 5 per cent in the second half, with the risks evenly balanced around the inflation trajectory at the current juncture. To suck out the excess liquidity, the RBI has raised the reverse repo rate by 25 basis points to 6 per cent. Corporates were not enthused by the RBI’s stand on the policy rates. “From the industry’s perspective, greater transmission of previous policy rate cuts and a further softening of the lending rates of banks are important as this would encourage both consumption and investment demand,” said Pankaj Patel, President, FICCI.

(The Hindu)