Need a well capitalised banking sector to support economy: RBI Guv Urjit Patel

New Delhi: Shortly after announcing the first bi-monthly review of 2017-18, Reserve Bank of India (RBI) Governor Urjit Patel on Thursday said that we need a well capitalised banking sector to support the economy.

The 6-member Monetary Policy Committee, headed by RBI Governor Urjit Patel, kept the repo rate or the short term rate at which central bank lends to banks unchanged at 6.25 percent and hiked the reverse repo rate by 0.25 percent to 6 percent.

RBI has narrowed policy rate corridor due to liquidity flush and increases marginal standing facility rate and bank rate to 6.50 percent.

Stating that liquidity has surged in the system post demonetisation, Patel said that RBI will continue to provide sufficient liquidity through LAF.

"The objective is to more finely align the money market rates with the policy rate, bring down volatility and create conditions for improved transmission of monetary policy across the whole spectrum of interest rates," Patel said.

RBI has projected inflation at 4.5 percent for first half of 2017-18 and 5 percent for second half.

The central bank said that GDP growth will be at 7.4 percent for the current fiscal, up from 6.7 percent in 2016-17.

Several indicators point to modest improvement in microeconomic outlook however the upside risk to inflation arises from one-off effect of Goods and Services Tax, the RBI added.