India central bank keeps rates on hold in surprise move

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The six-member Monetary Policy Committee, MPC, of the RBI, led by Governor Shaktikanta Das, will announce the credit policy for the current fiscal, a resolution passed by the ongoing three-day MPC meet in Mumbai.

The governor said that it is too early to speak on the central bank issuing digital currency, but he mentioned that there are discussions going on about it. Das stated that the technology to issue a CBDC has not fully evolved yet, but once the technology evolves with adequate safeguards, the RBI will look into the area at an appropriate time.

The decision for the RBI not to cut rates would have been a close call, considering that growth has remained weak and retail inflation is starting to edge up again (it is now at a 16 month high of 4.62 percent in October).

"The MPC also made a decision to 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.

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Das said the pause was temporary and the central bank wanted to assess the effect of its policy after reduction of 135 basis points in five policies this year. The MPC however lowered its growth forecast to 5 per cent for the current financial year while maintaining an "accommodative" stance, after inflation breached its medium-term target of 4 per cent for the first time in October after 15 months. The weighted average lending rate (WALR) on fresh rupee loans sanctioned by banks declined by only 44 bps. The central bank said it'll continue with its "accommodative" stance. The GDP in the June quarter closed at 5.1 per cent.

Commenting on the outlook for growth, the RBI said that "while improved monetary transmission and a quick resolution of global trade tensions are possible upsides to growth projections, a delay in revival of domestic demand, a further slowdown in global economic activity and geo-political tensions are downside risks". Though growth concerns are still paramount, a lot has changed between the earlier policies and now - inflation is rearing its head up again and the government's approach to the fiscal deficit glide path is still unclear even as the macro numbers indicate a considerable slippage in the target of 3.3% for this fiscal.

But debt-ridden banks have not reduced their lending rates, and so failed to pass on the benefits to consumers.

The reverse repo rate was kept unchanged at 4.90%.

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