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Accordingly, the repo rate at which it lends to the system stands at 6.25 per cent and the reverse repo rate at which it absorbs excess liquidity is also retained at 5.75 per cent. The monetary policy committee said it is “committed to bringing headline inflation closer to 4.0 per cent on a durable basis and in a calibrated manner” and this requires further “significant decline in inflation expectations, especially since the services component of inflation that is sensitive to wage movements has been sticky.
“The committee decided to change the stance from accommodative to neutral while keeping the policy rate on hold to assess how the transitory effects of demonetisation on inflation and the output gap play out,” the resolution of the Monetary Policy Committee said. In the last policy review in December, RBI had decided to keep policy rate unchanged.
RBI also revised down its gross value added growth projection down to 6.9 per cent for FY2016-17 from 7.4 per cent earlier, but added that it will pick up sharply to 7.4 per cent in FY2017-18. The central bank also decided to form a separate enforcement department for stricter enforcement of its regulatory and supervisory actions.
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