RBI unexpectedly hits the pause in reducing the interest rate; reduces the GDP growth forecast for fiscal year 2016 to 5%
Mumbai, December 5 () The Reserve Bank of India unexpectedly pressed a pause button Thursday to reduce the interest rate, as it gave more importance to prevailing inflationary pressure and rising food prices for a worrying economic slowdown.
After five consecutive interest rate cuts 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 the reverse 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 fell to a minimum of six years from 4.5 percent in the September quarter from 7 percent the previous year .
The RBI reiterated that it would maintain an accommodative stance for the time needed to revive economic growth, but cut its GDP growth forecast to 5 percent for the 2019-20 fiscal year from the previous estimate of 6.1 percent.
Das said the pause was temporary and that the central bank wanted to assess the effect of its policy after reducing 135 basis points in five policies this year.
The banks have passed only 44 basis points of the borrower rate cuts, he said.
There is space available for further monetary policy action, Das told reporters here, adding that it is necessary to maximize the impact of rate reductions.
According to the RBI, the need at this time is to address impediments, which are holding back investments in the economy.
Das said that the central bank cannot continue to mechanically reduce interest rates every time and that it will wait for the impact of coordinated measures taken by the government and the RBI in recent months to boost growth before making a decision. tariffs
While there are green shoots in the economy, it is too early to call for sustainability, Das said.
Recent measures initiated by the government will help revive the sentiment and stimulate domestic demand, which is attributed to the main reasons for the slowdown, he added.
In addition, Das said there is good coordination between fiscal and monetary policies so far to address growth concerns and that the RBI is not worried about the government's fiscal deficit target.
The MPC recognizes that there is a monetary policy space for future action. However, given the growth-inflation dynamic, the MPC considered it appropriate to pause at this juncture, the MPC said in a statement.
Das said that this was a temporary break 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 and emphasized that time was important rather than mechanically reducing rates.
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. For the first time in more than a year, inflation in October violated 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 RAM