INSUBCONTINENT EXCLUSIVE:
Governor Shaktikanta Das said the RBI cannot "mechanically" keep cutting interest rates every time
The
Reserve Bank of India (RBI) kept its key lending rate unchanged in a shock decision on Thursday and sharply revised its forecast for the
economy to project the weakest growth in seven years
The RBI's monetary policy committee led by its Governor Shaktikanta Das voted to hold the repo rate at 5.15 per cent
The central bank lowered its GDP growth forecast to 5 per cent from 6.1 per cent, while maintaining an "accommodative" policy stance
Economists had widely expected the RBI to deliver its sixth interest rate cut of the year at a time India is struggling against a more than
six-year low GDP expansion rate and thousands of job losses amid a slowdown across sectors
All six members of the Monetary Policy Committee voted to maintain the repo rate at the existing level and hold the reverse repo
The repo rate is the key interest rate at which the RBI lends short-term funds to commercial banks.Explaining its decision, the monetary
policy committee said it was concerned about inflation in the near term, while acknowledging that there is room to cut rates further.The
Reserve Bank of India is already the most aggressive central bank in Asia
It has so far this year reduced the key lending rate by a total 135 basis points (1.35 percentage point) in five consecutive bi-monthly
reviews till October.The status quo on repo rate came as a surprise to many economists
A poll of 70 economists by news agency Reuters had predicted that RBI would cut the repo rate by 25 basis points to 4.9 per cent.However,
some had also highlighted limited room for policy easing, considering rising consumer inflation which breached the RBI's medium-term target
of 4 per cent after a gap of 15 months.Speaking to reporters after the release of policy statement, Governor Shaktikanta Das said the RBI
will monitor how inflation pans out before taking further policy action
"The timing of rate cuts is very important in order to optimize its impact," he added
The RBI cannot "mechanically" keep cutting interest rates every time, he added.Lowering its overall economic growth forecast, the central
bank said the GDP expansion is expected to be in the range of 4.9-5.5 per cent in the second half of 2019-20, and 5.9-6.3 per cent in the
first half of next financial year.Several measures taken by the government and easing of monetary policy by the RBI since February are
gradually expected to feed into the real economy, the central bank said
Among the measures to revive growth are withdrawal of higher taxes on foreign investors, reduction in corporate taxes and a mega merger of
state-run banks.However, some surveys still show business confidence is at multi-year lows as the economy is expanding well below the rate
needed to generate enough jobs for the millions of young Indians entering the labour market each month.The RBI raised its consumer inflation
forecasts, to 5.1-4.7 per cent in the second half of 2019-20, and 4.0-3.8 per cent in the first half of 2020-21.
