The Reserve Bank of India's six-member Monetary Policy Committee (MPC) unanimously kept the repo rate unchanged at 5.15 percent on Thursday. Repo rate is the key interest rate at which the RBI lends short-term funds to commercial banks. The MPC, however, lowered its growth forecast to 5 percent for the current financial year while maintaining an "accommodative" stance, after inflation breached its medium-term target of 4 percent for the first time in October after 15 months.
The status quo on interest rates came as a surprise for many economists. A poll of 70 economists by news agency Reuters had predicted the RBI to cut its repo rate by 25 bps and then by another 15 bps in the second quarter of 2020, where it will stay at least until 2021.
"The MPC recognizes that there is monetary policy space for future action. However, given the evolving growth-inflation dynamics, the MPC felt it appropriate to take a pause at this juncture," the RBI said in its fifth bi-monthly policy statement of 2019-20.
"The MPC also decided to continue with the accommodative stance as long as it is necessary to revive growth while ensuring that inflation remains within the target," the RBI said.
The RBI expects the gross domestic product (GDP) to grow at 5 percent in the current financial year down from its expectation of growth of 6.1 percent in the October policy. All members of the MPC - Chetan Ghate, Pami Dua, Ravindra H Dholakia, Michael Debabrata Patra, Bibhu Prasad Kanungo and Shaktikanta Das - voted in favour of the decision to hold the key interest rate.
The Reserve Bank of India raised its inflation forecasts. The central bank now expects inflation at 5.1-4.7 percent in the second half of the current financial year, and 4.0-3.8 percent in the first half of the financial year 2020-21.
News Source: NDTV, Url: https://bit.ly/2rvxNZJ