India keeps policy rate unchanged in surprise move

The Reserve Bank of India held interest rates unchanged at a policy meeting on Friday, sending the rupee tumbling to a record low and stunning analysts who had expected a rate increase to combat inflationary pressures arising from high oil prices.

The RBI’s monetary policy committee (MPC) left the repo rate at 6.50 percent, though 35 out of 64 analysts surveyed by Reuters last week had forecast a rate hike.

The panel however, shifted its policy stance to ‘calibrated tightening” from ‘neutral’. Five of the six panel members voted to leave the rate unchanged.

“Global headwinds in the form of escalating trade tensions, volatile and rising oil prices, and tightening of global financial conditions pose substantial risks to the growth and inflation outlook,” the RBI said in its policy statement, adding that is was vital “to further strengthen domestic macroeconomic fundamentals.”

The MPC also held the reverse repo rate at 6.25 percent.

While the RBI kept its rates unchanged, analysts expect the central bank to raise rates by at least 50 basis points more going ahead, as inflationary pressures become more pronounced.

The Indian rupee weakened from 73.65 to hit an all-time low of 74.15 post the RBI policy, before stabilizing around the 74 level.

The rupee has slumped in recent months amid a global rise in oil prices and a sell-off in emerging markets. It has fallen more than 13 percent since January, making it the worst performing major Asian emerging market currency.

The 10-year benchmark bond yield fell to 8.03 percent from 8.13 percent before the policy was announced, as traders expected a rate hike were wrongfooted.

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