RBI keeps repo and reverse repo rates unchanged
Mumbai, Dec 5: The Reserve Bank of India (RBI) Wednesday expectedly kept interest rates unchanged but held out a promise to cut them if the upside risks to the inflation do not materialise.
It also coaxed banks to lend more in order to support the slowing economy.
With all the six member of the monetary policy committee (MPC) voting for a hold on rates, the RBI kept benchmark repurchase (repo) rate at 6.5 per cent.
Having raised rates twice this year, the central bank retained its 'calibrated tightening' policy stance.
"Even as inflation projections have been revised downwards significantly and some of the risks pointed out in the last resolution have been mitigated, especially of crude oil prices, several uncertainties still cloud the inflation outlook," it said in a statement.
While the statement was silent on future outlook on interest rates, RBI Governor Urjit Patel at the customary post MPC meeting press conference held out hope of a reduction if upside risks to inflation did not materialise.
"If the upside risks we have flagged do not materialise or are muted in their impact as reflected in incoming data, there is a possibility of space opening up for commensurate policy actions by the MPC," Patel said.
He said the MPC retained its stance at calibrated tightening "so as to buy time to pause, reflect and undertake future policy action with more robust inflation signals".
The RBI lowered inflation forecast for the second half of the fiscal year that ends in March 2019 to 2.7-3.2 per cent from a range of 3.9-4.5 per cent. The projection is below the medium-term target of 4 per cent.
Inflation in October eased to a 13-month low of 3.31 per cent.
It retained GDP growth forecast for the current fiscal year at 7.4 per cent.
In a bid to boost lending by banks by freeing up resources, the RBI lowered the reserves lenders are compulsorily required to hold in the form of government securities.
Starting first quarter of 2019 calendar year, it would begin to lower banks' mandatory bond holding ratios by 25 basis points each quarter until it reaches 18 per cent of deposits.
The statutory liquidity ratio (SLR) currently stands at 19.50 per cent and the move to lower the ratio is expected to prod banks to lend more rather than park their cash in safe-haven government securities.
"It is proposed to reduce the SLR by 25 basis points every calendar quarter until the SLR reaches 18 per cent of NDTL. The first reduction of 25 basis points will take effect in the quarter commencing January 2019," the RBI said in a separate statement.
The current SLR is 19.5 per cent of Net Demand and Time Liabilities (NDTL).
The RBI had raised repo rate to 6.25 per cent in June and followed it up by another hike to 6.5 per cent in August. It kept the rates unchanged in October and shifted stance to 'calibrated tightening' from neutral.
While the decision on keeping the policy rate unchanged was unanimous, Ravindra H Dholakia, one of the six members in the MPC voted to change the stance to neutral.
The MPC noted that the benign outlook for headline inflation is driven mainly by the unexpected softening of food inflation and collapse in oil prices in a relatively short period of time.
Excluding food items, inflation has remained sticky and elevated, and the output gap remains virtually closed.
"The MPC also noted that even as escalating trade tensions, tightening of global financial conditions and slowing down of global demand pose some downside risks to the domestic economy, the decline in oil prices in recent weeks, if sustained, will provide tailwinds," the statement said.
It further said the acceleration in investment activity also bodes well for the medium-term growth potential of the economy.
"The time is apposite to further strengthen domestic macroeconomic fundamentals. In this context, fiscal discipline is critical to create space for and crowd in private investment activity," the MPC said.
International crude oil prices have declined sharply since the last policy in October. The price of Indian crude basket collapsed to below USD 60 a barrel by end-November after touching USD 85 a barrel in early October.
In a separate statement, the RBI said the lending rate for retail and MSE borrowers would be benchmarked to external rates with effect from April 1. These could be repo rate or treasury bill yield or any other external benchmark market interest rate.
The proposal is aimed at ensuring greater transparency in lending rates by banks, the RBI said, adding final guidelines would be issued in this regard later this month.
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UK PM Keir Starmer takes ‘China matters’ message on first Beijing visit
London (PTI): “Like it or not, China matters to the UK,” is the message British Prime Minister Keir Starmer is taking on his visit to Beijing on Wednesday, accompanied by a 60-strong business and cultural delegation.
Downing Street said the visit, which will also cover Shanghai, reflects the UK’s “clear-eyed and realistic” approach to China in terms of opportunities and challenges they pose by continuing to pursue cooperation while “maintaining guardrails” when it comes to the country’s national security.
The Labour Party government is keen to highlight its re-engagement with China with this first visit in eight years, coming close on the heels of a ministerial go-ahead for its controversial new “mega embassy” in London.
“For years, our approach to China has been dogged by inconsistency – blowing hot and cold, from Golden Age to Ice Age. But like it or not, China matters for the UK,” Starmer said in a pre-visit statement.
“As one of the world’s biggest economic players, a strategic and consistent relationship with them is firmly in our national interest. That does not mean turning a blind eye to the challenges they pose – but engaging even where we disagree.
“This is what our allies do, and what I will do: delivering for the public, putting more money in their pockets and keeping them safe through pragmatic, consistent cooperation abroad,” he said.
The UK PM is set to meet President Xi Jinping and Premier Li Qiang in Beijing on Thursday for talks on trade, investment and national security, before travelling to Shanghai for a range of engagements with British and Chinese businesses.
Accompanied by a delegation of leading UK-based businesses, including Tata Motors owned Jaguar Land Rover, sporting institutions, museums and theatre groups, Starmer is expected to push for access in areas such as the financial services sector, creative industries and life sciences.
“However, he will be clear that we will not trade economic cooperation for our national security. He will raise the areas where we disagree with China – being clear that we will always defend our national security and where viewpoints differ, frank and open dialogue is of vital importance,” Downing Street said.
Describing China as the world’s second largest economy, a crucial player in global supply chains and a growing military power, the UK said it is important to engage with its third-largest trading partner which supports 3,70,000 British jobs.
“We want to see trade flourish between us. From financial services to advanced manufacturing and the global energy transition, the UK’s strengths increasingly align with the rapidly evolving Chinese economy,” said Peter Kyle, the Business and Trade Secretary travelling with Starmer.
“The first duty of government is security, and we protect ourselves best through active engagement and pragmatic cooperation, not by shutting the door,” he said.
The visit follows the 2025 Economic and Financial Dialogue (EFD) that the UK’s Department for Business and Trade (DBT) claimed secured 600 million pounds in immediate benefits and the first UK-China Joint Economic and Trade Commission (JETCO) since 2018.
“The UK’s world-leading financial services sector is a cornerstone of our economy. With deep and liquid markets, and the FTSE hitting all-time highs, there are real opportunities for mutually beneficial cooperation with China which supports jobs for working people and growth for businesses across Britain,” said Lucy Rigby, Economic Secretary to the Treasury, also part of the ministerial delegation.
The Opposition Conservatives have criticised Starmer’s approach to China, amid human rights concerns and espionage fears. “Starmer has already surrendered to the Chinese Communist Party over their plan for a spy-hub super embassy in the heart of our capital,” said shadow foreign secretary Priti Patel.
“The evidence is overwhelming that China poses a serious threat to our national security and it is clear Starmer is going to China without any leverage. He lacks the backbone to stand up for Britain and is bending over backwards to appease Beijing,” she said.
Following his trip to China, Starmer is set to travel to Tokyo to meet with Japanese Prime Minister Sanae Takaichi to reinforce the UK-Japan partnership, said to be worth over 100 billion pounds and supporting 2,00,000 UK jobs.
