RBI keeps policy rates intact; stance unchanged

Mae Love
October 7, 2018

The government welcomed the MPC's assessment and its decision to keep the policy rate unchanged. Dr. Chetan Ghate voted for an increase in the policy rate by 25 bps.

The Singapore dollar was less affected, dipping 0.4 per cent to S$1.3812 per U.S. dollar as at 2:40pm. As the festive season is also round the corner and property rates are fairly low across the country, it will trigger the home buying sentiment in the market. Oil prices are close to $85/barrel on Wednesday and the value of rupee touched 73 to the dollar for the first time.

The State Bank of India's interest rate hike decision had come ahead of the RBI monetary policy announcement, it has from 1st September, 2018, raised the interest rates on fixed term deposits. "We expect one more interest rate hike of 25 basis points during FY19, which will be dependent on the inflation trajectory (which will, in turn, depend on movement of oil prices and depreciation in the Indian currency)".

The rupee has tanked 14 percent against the dollar this year as investors withdraw from emerging markets.

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RBI maintained growth estimate at 7.4 per cent for current fiscal and projected retail inflation to rise to 3.8-4.5 per cent in October-March. "This was especially important in the wake of tightening financial environment in domestic as well as global market", industry chamber FICCI President Rashesh Shah said in a statement. This spooked investors leading to a fall of 550 points in the Sensex. However, the central bank warned that rising oil prices and tightening of global financial conditions pose substantial risks to growth and inflation.

The RBI said that made it vital "to further strengthen domestic macroeconomic fundamentals".

Belying market expectations of a rate hike, the Reserve Bank of India (RBI) on Friday held its key lending rates intact on the back of an uncertain global economic scenario. But the status quo in the policy has disappointed. However, given rupee depreciation and expected inflationary pressures, at least one rate hike by the RBI this year can not be ruled out, he said. "However, there is a probability that the central bank would change the stance from "neutral" too, as three successive rate hikes with a "neutral" stance could contradict the RBI message", the report said.

According to Madhavi Arora, Economist, FX and Rates, Edelweiss Securities said: "The RBI is clearly of the view that they should let underlying trade competitiveness improve gradually as the trade-weighted exchange rate acts as a natural stabiliser. We will have to wait and see", adds the analyst. Niranjan Hiranandani President, NAREDCO said.

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