Springing a surprise, the monetary policy committee of the Reserve Bank of India (RBI) maintained the repo rate at 5.15 per cent points (bps) in its fifth bi-monthly monetary policy meeting of the financial year 2019-20 (FY20) on Thursday. "Accordingly, the MPC made a decision to keep the policy repo rate unchanged and continue with the accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target", the RBI said, in the fifth bi-monthly monetary policy statement.
The benchmark 10-year bond yield rose to 6.5502% from 6.4735% before the announcement, while the rupee weakened to 71.58 against the US dollar. It was widely expected that the central bank would reduce its repo rate by 25 basis point (bps) to a ten-year-low. RBI has cut policy rates by 135 basis points so far in 2019.
RBI also revised its inflation forecast for the second half of the current fiscal to 4.7-5.1% from 3.5-3.7%. Evolving growth inflation dynamics has prompted the MPC to keep the rate unchanged, the RBI document suggested. This comes after consumer price inflation quickened to 4.62% in October, breaching the 4% target for the first time since July 2018.
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The GDP growth of 4.5 per cent is the worst growth rate in over six years and this will increase the pressure on RBI to look for methods to boost liquidity in the economy, which in turn will boost the spending power of the people in the market and ensure enough credit for industries to produce more. The MPC noted that inflation is expected to moderate below target by the second quarter of fiscal 2020-21 and that it would wait for data for more clarity on inflation outlook.
The S&P BSE Sensex index had on Wednesday ended 174.84 points (0.43 per cent) higher at 40,850.29 and the broader NSE Nifty benchmark settled at 12,043.20, up 49.00 points (0.41 per cent) from the previous close.