In an unexpected move, the Monetary Policy Committee of Reserve Bank of India (RBI) on Friday kept the repo rate unchanged at 6.5 per cent. The MPC changed the stance from 'neutral' to 'calibrated tightening'. Soon after the announcement, the Indian rupee tumbled to its all-time low of 74.10 against the US dollar.
In its Fourth Bi-monthly Monetary Policy Statement for 2018-19, the central bank said the decision of the MPC is consistent with the stance of calibrated tightening of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent.
The MPC meet comes amid rapid rise in international crude oil prices and Indian rupee hitting its all time low by breaching 73 mark against the US dollar. India's current account deficit (CAD) has also widened.
The RBI's MPC had raised key policy rates in the previous two meetings. RBI had hiked key policy rate in this fiscal's second bi-monthly policy in June after a hiatus of four-and-a-half years. Subsequently, the RBI raised the repo rate or short term lending rate by another 25 basis points in August policy meet.
Reserve Bank also retained GDP growth estimate at 7.4 per cent for the current financial year, adding that it is likely to go up to 7.6 per cent in FY20.
The MPC noted that 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.
RBI said that the reverse repo rate under the LAF remains at 6.25 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.