RBI surprises by keeping repo rate unchanged, slashes growth forecast; read experts' views

The Reserve Bank of India (RBI) kept its key lending rate on hold in a shock decision on Thursday, despite a worrying slowdown in the country that prompted the central bank to sharply reduce its economic growth forecast to 5% for the year through March.

The central bank acknowledged that it does have room to cut rates further, but said it was concerned about inflation in the near-term.

"The MPC recognises 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," the committee said in a statement.

COMMENTARY
DARREN AWE, ASIA ECONOMIST, CAPITAL ECONOMICS, SINGAPORE

"Tentatively, we are pencilling in a 25 bps cut in February. Beyond that, the picture is less clear. A strong recovery in growth in the near term seems unlikely, but there are at least glimmers of stabilisation in the recent data. Although industry continues to struggle, gauges of services activity, consumption and credit growth have all improved a little. And the effect of past monetary and fiscal stimulus should be felt soon. Our base case for now is that the easing cycle will come to an end in February."

KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU

"Surprising us and the market, the RBI decided to keep the policy rate unchanged at 5.15%."

"It seems that the RBI was more influenced by the optic of food price driven higher headline inflation even as they revised down their FY20 growth expectation to 5% yoy (close to our expectation of 5.1%) from their earlier expectation of 6.1%."

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"While the decision to pause is not entirely unjustified, given the clear lack of efficacy of monetary policy actions through the policy rate cut channel, what was worrying is that the RBI did not announce any unconventional measure but hoped for better transmission of its past actions despite the fact the weighted average cost of lending of scheduled commercial banks between December 2018 and October 2019 actually increased by 5 bps against a policy rate cut to the tune of 135 bps."