Published: Fri, December 06, 2019
Markets | By Otis Pena

A strategic pause: On RBI holding interest rate

A strategic pause: On RBI holding interest rate

Instead, the six-member panel unanimously voted to hold the key repo rate at 5.15% while the reverse repo rate was also held at 4.90%.

A message to the spokesperson of the Confederation of Indian Industry, which usually issues a statement, was not replied to, while various senior corporate executives said "no comments" when a reaction to the RBI's action was sought. "However, given the evolving growth-inflation dynamics, the MPC felt it appropriate to take a pause at this juncture", the committee said in a statement.

The RBI's Monetary Policy Committee (MPC) on Thursday unanimously chose to keep the key policy rate unchanged for the first time in 2019, as it anxious about the rising inflation and felt that more time was needed for the impact of past rate cuts and more clarity on the fiscal policy and price fronts.

The RBI reiterated that it would maintain an accommodative stance as long as necessary to revive economic growth but cut its GDP growth forecast to 5 percent for the 2019-20 fiscal from the earlier estimate of 6.1 percent. The weighted average lending rate (WALR) on fresh rupee loans sanctioned by banks declined by only 44 bps.

However, some buying towards the fag end of the session led to the index settling at 40779.59, which was 70.70 points, or 0.17 per cent, lower than the previous close. Bond yields rise when prices fall.

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"The market feels that given the revised inflation target set by RBI, the likelihood of a prolonged period of no rate cut is high", he said. The central bank kept the door open for further monetary easing based on "unfolding situation".

The central bank however slashed its annual growth forecast to 5 percent from 6.1 percent, as consumer demand and manufacturing activity contracts.

Gross domestic product numbers released on Friday had shown government spending helping to prop up weak demand, while private investment growth had virtually collapsed, with a crisis in the shadow banking sector causing illiquidity in the economy.

"We don't expect this decision to completely change the trend of the market except for consolidation in rate-sensitive stocks in the short term, " he said.

Addressing a press conference, Das said the forthcoming union budget will provide better insight into further measures to be undertaken by the Government and their impact on growth. "This augurs well for transmission to lending rates, going forward", it added.

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