RBI keeps key policy rates on hold as uncertainties loom

RBI keeps key policy rates on hold as uncertainties loom

RBI keeps key policy rates on hold as uncertainties loom

The Reserve Bank of India (RBI) has made a decision to set up an expert committee to identify causes and propose long-term solutions for the economic and financial sustainability of the micro, small and medium enterprises (MSME) sector.

RBI said inflation in the second half of the current fiscal is projected at 2.7-3.2 percent.

According to Section 7 (1) in The Reserve Bank of India Act, 1934, "The Central Government may, from time to time, give such directions to the RBI as it may after consultation with the Governor of the Bank consider necessary in the public interest". Hence, given the assessment that growth will likely remain healthy for the rest of the year, the MPC retained its stance at "calibrated tightening" so as to buy time to pause, reflect and undertake future policy action with more robust inflation signals.

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Consequently, the reverse repo rate under the LAF remains at 6.25 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.

"We also expect the tone of the statement to be dovish given inflation and growth momentum have softened, and the RBI will continue to keep infusing liquidity as bank lending growth needs to be supported to boost overall economic growth".

Since then the RBI's pause on rates has been in contrast to other Asian central banks, including South Korea, Philippines and Indonesia, that have raised rates.

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There are now clearer economic reasons to avoid going higher, analysts say. For the H1 of FY20, inflation is projected at 3.8 to 4.2%.

The rupee eased to 70.60 to the dollar from 70.50 before the policy statement, while the broader Nifty was down 0.8 percent at 3:39 pm. It is worth mentioning that the RBI, in its last bi-monthly meet in October, kept rates unchanged after two consecutive hikes starting June.

Policymakers have to nurse the shadow banking sector after a series of debt defaults by a major infrastructure lender. "We perceive that India is slowly entering into a low inflation, slowing growth quadrant".

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