RBI keeps key interest rate unchanged

Reserve Bank Of India kept interest rate unchanged at 6.25 percent  as  expected, while lowering projections for inflation .Its decision to leave the repo rate approx 6 year low after the monetary policy committee meeting and  reverse repo rate was also left unchanged at 6.00 percent.

The RBI cut banks' statutory liquidity ratio  by 50 bps to 20 percent of total deposits.Its projection for consumer inflation to 2-3.5 percent in April to September, down from 4.5 percent earlier, and to 3.5-4.5 percent in October to March, down from 5 percent earlier.

The change in forecast comes after consumer prices rose in April at their lowest annual rate in at least five years, slowing to 2.99 percent from 3.89 percent in March, well below the RBI's target of 4.0 percent.

The RBI said the risks to its inflation were "evenly balanced," a twist in its language from its statement in April when it cited "upside risks" to inflation.

"The decision of the Monetary Policy Committee is consistent with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent .

Several factors are pointing to more congenial inflation, including the likelihood of above-average monsoon rains, falling commodity prices, and a 5 percent rally in the rupee that has made imports cheaper.

India's economy grew a slower than expected 6.1 percent in the January-March quarter, its slowest pace in more than 2 years and down from 7 percent in the previous quarter, slowdown was largely due to the government's shocking decision to remove large denomination banknotes from circulation to combat rampant tax avoidance.

As a result, the RBI adjusted its projection for growth value-added, a measure of growth it prefers, to 7.3 percent in the year to March 2018, down from its previous projection of 7.4 percent, with "risks evenly balanced".