RBI keeps the key Repo rate unchanged at 5.15% - USD/INR unmoved near 71.50

At its bi-monthly monetary policy meeting held on Thursday, the Reserve Bank of India (RBI), Indian central bank, left its benchmark interest rate, Repo rate, unchanged at 5.15%, disappointing the doves who were expecting a sixth rate cut for this year.

Key Details:

Reverse repo rate stays at 4.90 pct.

To continue with accommodative monetary policy stance as long as it is necessary to revive growth.

Stance to be retained as long as inflation remains within target.

All 6 monetary policy committee members voted in favour of holding rates unchanged.

Real GDP growth projection for 2019/20 revised down to 5% from 6.1% seen earlier.

Headline inflation projection revised up to 5.1-4.7% for H2 2019/20, 4.0-3.8% for H1 2020/21.

MPC recognises there is monetary policy space for future action.

Inflation is rising in the near-term but is likely to moderate below target by Q2 of 2020/21.

Budget will provide better insight into further govt measures and their impact on growth.

Monetary transmission has been full and reasonably swift across various money mkt segments, private corporate bond mkt.

Delay in revival of domestic demand, further slowdown in global economic activity, geo-political tensions are downside risks to growth.

Some signs of recovery in investment activity but its sustainability needs to be closely watched.

Need at this juncture is to address impediments which are holding back investments.

To amend certain regulatory guidelines relating to urban co-operative banks, to issue draft circular shortly.

To bring large urban co-operative banks under RBI’s central repository of information on large credits.

To issue final guidelines for on-tap licensing of small finance banks on Thursday.

FX Implications

The Indian rupee showed little reaction to the unexpected no rate change decision, keeping its offered tone intact vs. the US dollar. USD/INR trades near 71.50 region, looking to recover from five-day lows of 71.43, reached prior to the RBI policy announcement.