MUMBAI: Reserve Bank of India astonished markets with a decision to keep interest rates on hold regardless of a mind-boggling desire of an interest rate cut. The central bank in its 6th bi-month to month strategy audit on Wednesday referred to worldwide instability, rising product costs and a solid resurgence of interest in FY18 as the reason behind keeping rates on hold.
The six-member Monetary Policy Committed led by RBI governor Urjit Patel voted unanimously to keep the repo rate unaltered at 6.25 for every penny and invert repo rate at 5.75 for each penny.
“The choice of the MPC is steady with an impartial position of monetary policy in consonance with the goal of consumer price index (CPI) inflation at 5 for each cent by Q4 of 2016-17 and the medium-term target of 4 for every cent,” the statement said.
The Committee is of the view that the steadiness of inflation excluding food and fuel could set a floor on further descending developments in inflation and trigger second-order impacts, in spite of the fact that consumer price inflation was relied upon to be contained at 5% in FY17.
RBI said that growth for 2016-17 is projected at 6.9 per cent. Growth is expected to recover sharply in 2017-18 on account of three factors- discretionary consumer demand which was held back by demonetization+ is expected to come back; economic activity in cash-intensive sectors such as retail trade, hotels and restaurants, and transportation, as well as in the unorganized sector, is expected to be rapidly restored. Also, demonetization-induced ease in bank funding conditions has led to drop in interest rates.
(Source: RBI Twitter)