The committee headed by RBI Governor, Urjit Patel opted to take a pause this time and it is most likely that there is more possibility to increase interest rates in the coming quarters. "Against this backdrop, the impact of cost-push factors should be limited and transient and, as the output gap again turns negative, underlying inflation should converge back towards 4.5 per cent".
The think-tank of the Monetary Policy Committee (MPC) has chose to hold the rates against strong expectations that the rates may be hiked for the third time in a row.
But the policy statement contained little on that, as the central bank has aggressively bought government bonds through open market operations to keep markets liquid, rather than resort to administrative measures to release more cash into the system.
Lately, concerns over a rise in inflation rate, high crude oil prices and an outflow of foreign funds from the country's equity market has subdued the Indian currency. Firstly, it ascertained that inflation was in a manageable range given the recent decline in food prices.
Forty out of 49 economists surveyed by Bloomberg News had predicted a rise of 25 basis points.
The panel's decision comes at a hard time for Indian policy-makers.
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Foreigners have pulled $9.7 billion from local shares and debt this year, adding to worries that India will struggle to bridge its swelling current-account deficit.
On Thursday, the government announced relief to consumers by lowering duties on fuel, a move that puts pressure on budget goals.
Sentiments were also bearish largely in tandem with a sell-off in global markets as US Treasury yields surged to multi-year highs on robust economic data and comments from the Federal Reserve, sparking fears of accelerating inflation, brokers said.
Contrary to market expectations, the monetary policy committee of the RBI kept the repo rate unchanged at 6.5%. Surge in the global prices of crude oil has been the major party spoiler; per barrel cost of crude has surpassed $80, making it costly for importing, thus leading heavy depreciation in the Indian currency.
In absolute terms, the rupee is down around 17 per cent since January this year. "Should there be a fiscal slippage at centre or states, it will have a bearing on the inflation outlook, besides heightening market volatility and crowding out private investment", the RBI governor said.