Helped by Stability in Rupee and Oil Prices, RBI Keeps Interest Rates Unchanged

Following the review, the repo rate now remains unchanged at 6.5% and the reverse repo rate has been held at 6.25%.

New Delhi: The Reserve Bank of India’s (RBI) monetary policy committee (MPC) on Tuesday kept the benchmark policy rate unchanged for its second consecutive meeting.

The decision was widely expected in the wake of softening inflation and an increasingly stable rupee. Most analysts polled by Bloomberg and Reuters had expected the central bank to keep its repo rate steady.

The last time the policy repo rate was hiked was back in August 2018, when the rate was raised by 25 basis points.

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Over the last month, and since the MPC’s last meeting in October, India’s macroeconomic indicators have taken a turn for the better: the rupee has recovered from record lows and the recent fall in global crude oil prices has also soothed over concerns that were being expressed with regard to the Modi government’s current account deficit.

Following the MPCs review, the repo rate now remains unchanged at 6.5% and the reverse repo rate has been held at 6.25%.

However, the committee’s monetary policy stance is still set to ‘calibrated tightening’, which rules out a future interest rate cut, even though there has been a sharp cut in inflation forecasts.

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“The decision of the MPC is consistent with the stance of calibrated tightening of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4%within a band of +/- 2%, while supporting growth,” said the MPC’s resolution.

The cut in inflation forecasts suggests that it will come very near to the mid-point of the MPC’s target of 4 (+/-2)%, leaving little reason for further rate hikes.

The RBI’s MPC, however, continues to maintain a cautious stance.

“Although recent food inflation prints have surprised on the downside and prices of petroleum products have softened considerably, it is important to monitor their evolution closely and allow heightened short-term uncertainties to be resolved by incoming data,” said the committee’s resolution released on Tuesday.

Note: This article was edited on December 8 to reflect that the repo rate was hiked by 25 basis points and not 50 in August 2018.

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