In a surprise move for many economists, the Reserve Bank of India (RBI) on Thursday kept the repo rate unchanged at 5.15 per cent.
However, the Monetary Policy Committee of the apex bank decreased its GDP growth forecast for the current financial year 2019-20 to 5 per cent from 6.1 per cent in October, while maintaining an “accommodative” policy stance.
In its October monetary policy, the RBI had estimated the GDP to grow at 6.1 per cent in the financial year 2019-20.
Meanwhile, the reverse repo rate is at the earlier 4.90 per cent and bank rate at 5.40 per cent.
The RBI’s fifth policy statement of the current financial year comes at a time when the GDP growth rate has slipped to a six-year low for the September quarter.
It was widely expected that the central bank will cut interest rates for the sixth straight time as the RBI is likely to continue to focus on the sustained slowdown in India’s economic activity.
However, in a surprise decision, all six members of the Monetary Policy Committee voted to maintain the repo rate at the existing level.
The repo rate is the key interest rate at which the RBI lends short-term funds to commercial banks.
Meanwhile, the RBI is just a rate cut away from post- Lehman lending rate of 4.75 per cent.
The central bank said that the July-September GDP growth had turned out to be significantly lower than projected and various high-frequency indicators suggest that domestic and external demand conditions have remained weak.
“While improved monetary transmission and a quick resolution of global trade tensions are possible upsides to growth projections, a delay in the revival of domestic demand, a further slowdown in global economic activity and geopolitical tensions are downside risks,” the RBI said in its monetary policy statement.
The RBI, however, sees a marginal pick up in business sentiments in the Q4 of the current fiscal.
“On the positive side, however, monetary policy easing since February 2019 and the measures initiated by the government over the last few months are expected to revive sentiment and spur domestic demand,” the RBI said.
The Monetary Policy Committee (MPC) noted that economic activity has weakened further and the output gap remains negative.
“However, several measures already initiated by the government and the monetary easing undertaken by the Reserve Bank since February 2019 are gradually expected to further feed into the real economy,” the RBI said.