RBI Keeps Key Policy Rate Unchanged, Cuts GDP Growth Forecast From 6.1% To 5%

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New Delhi: The monetary policy committee (MPC) of the Reserve Bank of India (RBI) on Thursday kept the key policy rate unchanged at 5.15 per cent.

The MPC, however, acknowledged that there is space for monetary policy action in the future, while maintaining an accommodative stance. All members of the MPC voted in favour of the decision.

A Reuters poll of 70 economists had predicted the RBI would cut its repo rate by 25 basis points (bps).

The RBI today also revised its GDP growth outlook for 2019-20 downwards to 5%, from 6.1% in the October policy.

According to the RBI, “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.”

RBI’s five interest rate cuts since the start of the year hasn’t stopped India’s economy from slowing to its weakest growth rate since 2013. The central bank has cut repo rate by a cumulative 135 basis points so far this month.

The economy grew at 4.5% annually in the June-September quarter, its weakest pace in over six years. The GDP data released last month showed government spending helping to prop up weak demand, but private investment growth had virtually collapsed.

“In the judgement of the MPC, inflation is rising in the near-term, but it is likely to moderate below target by Q2 of 2020-21. It is, therefore, prudent to carefully monitor incoming data to gain clarity on the inflation outlook. Similarly, the forthcoming union budget will provide better insight into further measures to be undertaken by the government and their impact on growth,” the RBI further stated.

Annual retail inflation rose to 4.62% in October, climbing above 4% for the first time in 15 months and up from 3.99% in September. Analysts believe transient factors were to blame, so the central bank still has room to continue cutting rates in the future.

The September industrial output too contracted 4.3%, following a decline of 1.4% in August.

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