RBI unexpectedly stops the interest rate due to inflationary concern and reduces the GDP growth forecast
Mumbai, December 5 () The Reserve Bank unexpectedly maintained reference interest rates unchanged on Thursday due to concerns that general inflation would violate its medium-term target, despite a worrying slowdown in the economy.
After five consecutive cuts in interest rates this year, the six-member monetary policy committee (MPC) headed by RBI governor Shaktikanta Das voted unanimously to keep the key repo rate at 5.15 percent and reverse the repo rate at 4.90 percent.
Bankers and economists widely expected the central bank to reduce rates for the sixth time to support a decelerating economy, whose growth rate was further reduced, to a minimum of six years of 4.5% in the September quarter, since 7% of the previous year.
The RBI reiterated that it would maintain an accommodative stance as long as necessary to revive economic growth, but reduced its GDP growth forecast to 5 percent for the 2019-20 fiscal year (April to March) from the 6 percent previously estimated.
The MPC recognizes that there is a monetary policy space for future action. However, given the growth-inflation dynamics, the MPC considered it appropriate to pause at this juncture, the committee said in a statement.
Das said that this was a temporary pause in the interest rate reduction cycle and that the MPC will be better able to decide in February after more data arrives and the government presents its budget for 2020-21.
Let the impact of the cut of 135 basis points develop further, he said, adding that time was important rather than mechanically reducing rates.
In the five reductions this year, the RBI has reduced the key interest rate by a total of 135 basis points.
The need at this time is to address the impediments, which are holding back investments, the RBI said.
By stating that overall inflation at 4.6 percent in October was much higher than expected, the central bank raised its inflation forecast for the second half of the fiscal year to 5.1-4.7 percent from 3.5-3.7 percent seen earlier. Inflation in October for the first time in more than a year failed to meet the medium-term objective of 4% of the RBI. This was mainly due to rising prices for vegetables such as onions and tomatoes, Das said. HV DP CS ANZ MKJ