The monetary policy committee (MPC) of the Reserve Bank of India (RBI), led by Governor Urjit Patel, kept its policy rate unchanged on Wednesday, as widely expected, after inflation accelerated to a seven-month high and stronger economic growth reduced the need for monetary stimulus.
The market also seemed to be of the view that the six-member monetary policy committee will not change the policy repo rate. Besides rising inflation, the issues of hardening bond yields and tightening liquidity have reduced the scope for RBI loosen its stance.
Ten economists and bond dealers polled by Business Standard said the policy repo rate was expected to stay put at six per cent. Even as the policy stance would likely remain ‘neutral’, many economists said this could be the end of a rate-easing cycle.
In the October review of its monetary policy, the MPC had kept the benchmark interest rate unchanged and lowered its growth forecast for the country’s economy in 2017-18 to 6.7 per cent.
The central bank had last tinkered with the policy rate in August, when it brought the repo rate down by 25 basis points to a six-year low of six per cent.
The RBI also kept the reverse repo rate unchanged at 5.75 per cent. Wednesday's decisions were widely predicted after the annual rate of consumer inflation increased in October to 3.58 per cent, driven by higher food and crude oil prices. That's still low by Indian standards, but not far from the central bank's 4 per cent target.
Nonetheless, some analysts still see scope for a rate cut should inflation accelerate less than expected. That is because the economy, though recovering from July's bumpy launch of a national sales tax, is not yet growing fast enough to create the jobs needed for India's young workforce.
The RBI on Wednesday left its policy stance "neutral", which might leave the door open for a rate move at its next meeting in February. The central bank said it would track economic growth and inflation data, adding that risks to both "evenly balanced".
Five members of the Monetary Policy Committee (MPC) voted to keep rates unchanged, with one voting for a 25 bps cut.
"Keeping in mind the output gap dynamics, the MPC decided to continue with the neutral stance and watch the incoming data carefully," the RBI said in a statement.