RBI Monetary Policy Update: Central bank keeps repo rate unchanged at 6.5%

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Hindustan Surkhiyan Desk: The Monetary Policy Committee or MPC of Reserve Bank of India (RBI) has announced its rate review decision today. The Central Bank surprisingly decided that the Policy Repo rate under the liquidity adjustment facility (LAF) will remain unchanged at 6.5 per cent against the widely expected hike of 25 basis points, reported news agency ANI. RBI has kept the reverse repo rate at 6.25 per cent whereas the bank rate at 6.75 per cent. However, the MPC changed stance from ‘Neutral’ to ‘Calibrated Tightening’.

The Central bank on Friday conduced its fourth MPC meeting of FY19 against the backdrop of rising crude oil prices, concerns over current account deficit (CAD) and liquidity issues and sharp fall of Indian rupee against the US dollar.

The RBI had hiked interest rate by 25 basis points each in June and August in the wake of pressure on inflation and volatility in crude oil prices. Speaking to media, RBI Governor Urijit Patel said, “Depreciation of Rupee against US Dollar has been comparatively moderate in comparison to currencies of other EMEs (emerging markets economies).” Further explaining the rationale behind the decision to hold the rates, Patel said that the mandate of the central bank is to target inflation at 4 per cent (with 2 per cent flexibility). He also stated that whatever risks are there have been included in the inflation forecast. “We had two rate hikes earlier. Today’s stance is ‘calibrated tightening’, which means that in this cycle rate cut is off the table,” he added.

Speaking about the continuous dip of India rupee against the US dollar, the RBI Governor said, RBI Governor said that the rupee has fallen 5% in real terms since March-end. The RBI decided to keep the repo rate unchanged even as the market was expecting some intervention amid the rout in the currency market.

Patel also claimed that India’s foreign exchange reserves at $405 billion are good enough cover 10 months of imports even as he expressed caution over other fundamentals. As per reports, the MPC voted 5-1 to keep the repo rate unchanged. Chetan Ghate voted to hike the repo rate by 25 basis points, which was widely expected, while Ravindra Dholakia voted for maintaining ‘Neutral’ stance. “Government welcomes MPC(monetary policy committee) statement & decision to keep rates unchanged. Government‘s assessment of inflation is in line with the MPC’s assessment. We believe growth should turn out to be higher than that projected by MPC,” DEA Secretary SC Garg said.

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