RBI Keeps Rate Unchanged In Unexpected Move, Sharply Cuts Growth Target
Consumer inflation has crossed the RBI's 4% medium-term target for the first time in more than a year.
The Reserve Bank of India's six-member Monetary Policy Committee (MPC) unanimously kept the repo rate unchanged at 5.15 per cent 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 per cent for the current financial year while maintaining an "accommodative" stance, after inflation breached its medium-term target of 4 per cent 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 recognises 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 gross domestic product (GDP) to grow at 5 per cent in the current financial year down from its expectation of growth of 6.1 per cent in 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 per cent in second half of the current financial year, and 4.0-3.8 per cent in the first half of financial year 2020-21.