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RBI Keeps Key Rates Unchanged, Rupee Breaches 74-Mark: 10 Points

RBI Policy: The RBI retained GDP growth estimate at 7.4 per cent for fiscal year ending in March 2019.

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RBI Keeps Key Rates Unchanged, Rupee Breaches 74-Mark: 10 Points

RBI Policy: Five of the six panel members voted to leave the rate unchanged.

In a surprise move, the Reserve Bank of India (RBI) kept the repo rate- the rate at which it lends loans to commercial banks - unchanged at 6.5 per cent. The reverse repo rate or the rate at which RBI borrows from commercial banks was kept unchanged at 6.25 per cent. Soon after the announcement, the rupee breached the 74 mark against the US dollar for the first time ever. Experts had largely expected the RBI to hike the repo rate by 0.25 per cent.
Here are 10 things to know about RBI's fourth bi-monthly policy announcement:
  1. The RBI retained GDP growth estimate at 7.4 per cent for fiscal year ending in March 2019.
  2. Five of the six panel members voted to leave the rate unchanged.
  3. The monetary policy committee, however, shifted its policy stance to 'calibrated tightening" from 'neutral'.  
  4. Anticipation of a rate hike had increased in the past month as oil prices climbed, the rupee's slide accelerated and concerns on liquidity emerged. Thirty-five out of 64 analysts surveyed by news agency Reuters last week had forecast a rate hike.
  5. Even as RBI Governor Urjit Patel said that the rupee fall is moderate in comparison to emerging markets peers, the rupee breached the 74-mark against the US dollar for the first time ever, reported news agency Press Trust of India (PTI). It hit a new low of 74.20 against the dollar soon after the RBI announced its monetary policy.
  6. Headline inflation is estimated to accelerate to 4.5 per cent by March 2019 quarter with upside risks, RBI said in its policy statement.
  7. RBI's decision to keep key rates unchanged is risky as the rupee has been sliding, said experts. "This is a risky move by the RBI since the market was positioned for a rate hike, purely as a rupee defence. In its absence currency and asset markets could see sharper corrections. A narrow focus on inflation targets is perhaps not desirable in the middle of a financial crisis. Change in stance suggests that the rate hike could still come in the coming months," said Abheek Barua, Chief Economist, HDFC Bank.
  8. The RBI adopted a wait and watch policy to strengthen economic fundamentals, said Anis Chakravarty, Lead Economist and Partner, Deloitte India. "The current decision may have been taken keeping in mind the need to strengthen macro fundamentals wherein investment and manufacturing have only started seeing some growth. We believe that a consistent rise in interest rates could destabilize the markets, disrupting the price-growth balance," he said.
  9. The governor ruled out further rate cuts, saying "calibrated tightening" means a rate cut is off the table. "The current decision may have been taken keeping in mind the need to strengthen macro fundamentals wherein investment and manufacturing have only started seeing some growth. We believe that a consistent rise in interest rates could destabilize the markets, disrupting the price-growth balance," he said.
  10.  The RBI had last raised interest rates in two successive policy reviews in August and June this year. (With agencies inputs)




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