The Reserve Bank kept interest rate unchanged as widely expected but raised concerns over fiscal slippages in view of rush for farm loan waivers.
It has however slashed the Statutory Liquidity Ratio (SLR) or the percentage of deposits that banks have to park in government securities, by 0.5 per cent to 20.5 per cent, a move that would result increased lending by banks.
The fifth meeting of Monetary Policy Committee (MPC) maintained the repo rate, at which it lends to the banks, at 6.25 per cent and the reverse repo, at which it borrows, will be 6 per cent.
“The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth,” RBI said in its second bi-monthly policy review for 2017-18.
“The current state of the economy underscores the need to revive private investment, restore banking sector health and remove infrastructural bottlenecks. Monetary policy can play a more effective role only when these factors are in place, it said.
The central bank, however, raised concerns over the possibility of fiscal slippages due to the farm loan waivers.
“The risk of fiscal slippages, which, by and large, can entail inflationary spillovers, has risen with the announcements of large farm loan waivers,” it said.
RBI cut the economic growth projection to 7.3 per cent for the current fiscal from 7.4 per cent earlier.