Inflationary Pangs: RBI holds key lending rates, remains accommodative
Mumbai, Policenama Online – In a surprise move, the Reserve Bank of India on Thursday took a ‘temporary pause’ in reducing key lending rates to keep the retail inflation in check.Accordingly, the RBI’s monetary policy committee (MPC) in its fifth review of the current fiscal kept the repo, or short term lending rate for commercial banks at 5.15 per cent.Consequently, the reverse repo rate was maintained at 4.90 per cent, and the marginal standing facility (MSF) rate and the bank rate remained at 5.40 per cent. The Reserve Bank had reduced key lending rates during the last five policy reviews to reverse the current consumption slowdown that has plagued the country’s economy, thus surprising India Inc and many economists.However, the Reserve Bank’s Monetary Policy Committee continued its accommodative stance.
“The MPC also decided to continue with the accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target,” the Fifth Bi-monthly Monetary Policy Statement, 2019-20 said.Last month, macro-economic data showed that a substantial rise in food prices had lifted India’s October retail inflation to 4.62 per cent from 3.99 per cent in September.Furthermore, RBI MPC expects inflation to rise in the near-term, “but it is likely to moderate below target by Q2 of 2020-21″. On the other hand, it reduced the country’s FY20 GDP growth forecast from 6.1 per cent in the October policy to 5 per cent.”The MPC 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 policy statement said.
“Accordingly, the MPC decided to keep the policy repo rate unchanged and continue with the accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target.” Not just India Inc but even the country’s stock markets were taken in by surprise and plunged the S&P BSE Sensex into the red.Both the Sensex and the NSE Nifty50 on the National Stock Exchange slumped to the negative territory as soon as the announcement came.The Sensex traded at 40,815.15, lower by 35.14 points or 0.09 per cent from the previous close of 40,850.29. Similarly, the NSE Nifty50 traded at 12,031.95, lower by 11.25 points or 0.09 per cent from its previous close.