In a surprising move, the Reserve Bank of India (RBI) kept the repo rate unchanged in its December policy review while maintaining an accommodative stance.
The committee was widely expected to cut rates in the upcoming policy to support the weakening economic growth.
All six members of the Monetary Policy Committee (MPC) voted in favor of a pause, the RBI said in a statement on December 5.
The repo rate remains unchanged at 5.15% while the reverse repo rate stays unchanged at 4.90%.
The MPC sterobody.com unanimously voted for the status quo on repo rate while it recognized that “there is monetary policy space for future”.
It has also decided to continue with the accommodative stance “as long as it is necessary” while aims to revive growth while ensuring CPI in the band.
The MPC recognizes 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
RBI revised its inflation outlook upwards and said that it will monitor incoming data for clarity on inflation.
The central bank also cut its growth outlook from 6.1% in the October policy to 5% for the current financial year.
It further added that the forthcoming union budget will provide better insight into further measures to be undertaken by the government and their impact on growth.
MPC said that economic activity has weakened further and the output gap remains negative.
However, several measures already initiated by the government and the monetary easing undertaken by RBI since February 2019 are gradually expected to further feed into the real economy.
While improved monetary transmission and a quick resolution of global trade tensions are possible upsides to growth projections, RBI said that a delay in the revival of domestic demand, a further slowdown in global economic activity and geopolitical tensions are downside risks.
Based on the early results, RBI said the business expectations index of the Reserve Bank’s industrial outlook survey indicates a marginal pickup in business sentiments in Q4.
Meanwhile, RBI has set an exposure limit and priority sector lending guidelines for Urban Co-Operative Bank.
Future, it has been decided to bring UCBs with assets of Rs 500 crore and above under the Central Repository of Information on Large Credits (CRILC) reporting framework.
RBI is also working on a comprehensive cybersecurity framework for primary urban banks and the development of secondary markets for corporate loans.
Net it’s quite obvious that the markets which were hoping for a rate cut in this policy was clearly disappointed and this is likely to see some short term underperformance in the PSU and PVT banks as well interest rate sensitive sectors ahead
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