The Reserve Bank of India (RBI) has signalled an unexpected early end to the two-year-old rate cut cycle, citing concerns of resurgent inflation. On Wednesday, it concluded the meeting of it monetary policy committee with a decision to keep its key lending rate unchanged.
The monetary policy committee (MPC), headed by governor Urjit Patel, decided unanimously to shift the policy stance from “accommodative” to “neutral” and left the repo rate at 6.25%. The shift in stance means the central bank is unlikely to cut rates anytime soon, let alone in April, when the MPC will next review policy. RBI hit the pause button after cutting the repo rate, at which it infuses liquidity into the banking system, by 175 basis points (bps) since the start of 2015—150 bps of it under previous governor Raghuram Rajan before his tenure ended in September 2016. One basis point is one-hundredth of a percentage point.
The MPC said it was still assessing the transitory effects of demonetisation on inflation, and the output gap. It also cited significant upside risks to inflation, such as rising crude prices and exchange rate volatility.
Read full report: RBI cites inflation concerns, signals end to rate cut cycle