RBI belies expectations, keeps repo rate unchanged
Belying expectations, the Monetary Policy Committee of the RBI has decided to not cut repo rate and wait for past policy actions to play out
December 05, 2019
Belying expectations, the Monetary Policy Committee of the Reserve Bank of India (RBI) has decided to not cut repo rate on Thursday. The news comes just days after data showed that India’s Gross Domestic Product
(GDP) slumped to 4.5 percent in the September quarter of financial year 2019-20.
In a statement, RBI said that it will wait for past policy actions, undertaken by the government and the central bank, to play out and will maintain an “accommodative stance as long as it is necessary.”
RBI repo rate remains unchanged at 5.15%
With no rate cut, the repo rate—the rate at which banks borrow from it—remains unchanged at 5.15 percent. The six member of the Monetary Policy Committee were unanimous in their decision to hold rates.
“The MPC recognises that there is monetary policy space for future action. However, given the evolving growth-inflation dynamics, the MPC felt it appropriate to take a pause at this juncture. Accordingly, the MPC decided 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 its policy statement.
‘Removing impediments to investments need of the hour’
Noting that the economic growth had weakened, the RBI MPC noted that removing impediments to investments was the need of the hour. It also said that it is better to wait for the upcoming budget to get a better clarity on further measures to be undertaken by the government and its impact on growth before easing the policy.
“The need at this juncture is to address impediments, which are holding back investments. The introduction of external benchmarks is expected to strengthen monetary transmission. In this context, there is also a need for greater flexibility in the adjustment in interest rates on small saving schemes,” the statement said.