Markets surprised as RBI keeps rates unchanged

After back-to-back hike since June, the Reserve Bank of India (RBI) has kept interest rates unchanged, surprising markets that had expected a rate hike to support tumbling rupee and combat inflationary pressures from high oil prices.
With five of its six members voting for a status quo, RBI’s monetary policy committee (MPC) left repo rate at 6.50 per cent and changed policy stance to ‘calibrated tightening’ from ‘neutral’, which RBI Governor Urjit Patel reportedly said meant there would be no rate cut in the current cycle.
Vowing to keep the inflation rate under targeted 4 per cent, RBI warned that volatile and rising oil prices, and tightening of global financial conditions pose substantial risks to growth and inflation, reported PTI.
A majority of the analysts and bankers had expected that RBI will raise interest rate by at least a 0.25 per cent with some even rooting for a 0.50 per cent increase in view of the developments over the last few days where rupee had continued to slide and international oil prices hit four-year high, the report said.
Soon after the monetary policy announcement, the rupee slid to a new record low, falling past the 74 to a dollar mark, before closing down 0.3 per cent to 73.7650. The domestic unit has fallen 14.5 per cent since January, making it the worst performing major Asian emerging market currency, it added.
“Today’s stance of calibrated tightening essentially means that in this rate cycle a rate cut is off the table, and that we are not bound to increase rates at every meeting,” Patel was quoted as saying. “As new data comes in we would look into changing our policies accordingly”.
Welcoming the decision of RBI to keep rates unchanged, Economic Affairs Secretary S C Garg reportedly said the 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,” Garg said.
The RBI prerdicted GDP growth of 7.4 per cent in the current financial year ending March 31, 2019 and 7.6 per cent in the next.

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