Asia: India’s central bank keeps the interest rate the same at 6%

India’s central bank, the Reserve Bank of India (RBI) kept the repurchase (repo) rate unchanged at 6%. This is a standard the rate at which central banks infuses liquidity in the banking system by lending to banks. The government keep the same rate to avoid inflation and slowdown in the economic forecast for 2017.

The decision to hold rates was initiated by RBI’s six-member monetary policy committee (MPC). One of the members had suggested lowering the repo rate, however the rest of the committees cited several upside risks to inflation such as farm loan waivers, and the price revisions following implementation of goods and services tax (GST). Generally, if interest rates are low, more people can borrow more money. This results to consumers having more money to spend, increase price by sellers and further drive the inflation.

Apart from keeping interest rates at the same level, RBI also lowered its fiscal 2018 projection for economic growth, from 7.3% to 6.7%, as the central bank is still monitoring the reactions from various sectors from the implementation of new GST in July this year. Under the new GST, tax is calculated at a country level instead of by state and or city level. According to MPC’s spokesperson, the implementation of new GST system may may further delay the revival of investment activity.

According to RFi Group data, around 6 out of 10 banked customers in India (64%) are concerned about India’s economic outlook over the next one year. The central bank’s decision to keep interest rates the same would be able to avoid uncontrollable inflation in India and hence help mitigate this concern.

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