The Reserve Bank of India (RBI), widely speculated to continue with its repo rate cuts, took economists and industry watchers by surprise on Thursday leaving the lending rate untouched. The central bank, however, slashed the GDP growth rate projection for the current economic year from 6.1 per cent to 5 per cent.
The repo rate currently remains unchanged at 5.15 per cent, while reverse repo rate is at 4.90 per cent and bank rate is 5.40 per cent. Though the repo rate remained untouched, the RBI, however, said it will continue with its accommodative stance to revive growth.
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The RBI decided to let the repo rate remain untouched after all the six members of the MPC voted in favour of a rate pause. However, this comes as a surprise, if not a shock, as between February and October 2019, the RBI has reduced repo rate by 135 basis points. With India's GDP growth rate hitting more than a 26-quarter low of 4.5 per cent during July-September, it was widely expected that the RBI would slash repo rate further in the December MPC to ease lending rates to promote consumption.
"The Monetary Policy Committee 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," the RBI said in its fifth bi-monthly monetary policy for this fiscal. However, in contrast to his observation on banks delaying rate cut benefits to customers post his last MPC meet, RBI Governor Shaktikanta Das noted that the monetary transmission by lenders has been full and reasonably swift.
The apex bank also revised the retail inflation upwards to 5.1-4.7 per cent for the second half of the year. The CPI inflation projection for the first of next financial year has also been revised upwards to 4-3.8 per cent. However, the central bank maintained that inflation remains within the target.
The MPC noted that the economic activity in the country had weakened further. It expressed hope that the measures already initiated by the government, coupled with rate cuts by the central bank since February, would further feed into the real economy.