RBI keeps repo rate unchanged at 6.5%

RBI keeps repo rate unchanged at 6.5%

The six-member monetary policy committee led by Governor Urjit Patel voted 5-1 to keep the repurchase rate at 6.50 percent on Friday. The central bank chose to hold the meeting when the country is facing the continuous threat of devaluation of the Indian rupee against the USA dollar, rising crude oil prices and liquidity issue.

Adding to the bullish mood, Federal Reserve chairman Jerome Powell said on Wednesday that the central bank may raise interest rates above an estimated "neutral" setting as the "remarkably positive" U.S. economy continues to grow. "However, there is a probability of change in neutral stance too, as three successive rate hikes with a neutral stance could contradict RBI message", the research report said.

The Indian rupee slumped to a new all-time low of 74.23 against the US dollar, weakening from around the 73.65 ahead of the RBI policy statement. The rupee has depreciated almost 15 percent this year, becoming the worst-performing currency in Asia apart Indonesia and the Philippines.

Consistent dollar demand from importers, mainly oil refiners, following higher crude oil prices, kept the rupee under pressure.

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In its fourth bi-monthly monetary policy for the fiscal, the RBI made a strong case for improving domestic macro economic fundamentals to neutralise the impact of global trade tension and rising oil prices. Higher prices have swollen India's current account deficit, which last stood at around 2.4 per cent of GDP, in the April-June quarter.

Mr Gandhi took aim at Prime Minister Narendra Modi yesterday, accusing him of remaining silent over the rupee crisis. Indian equities fell about 1.6 per cent. Traders said the Reserve Bank of India likely intervened to curb the rupee's fall.

The greenback also shot to its highest so far this year on the yen and an all-time high against the Indian rupee. "Raising the repo rate will increase the real interest rates and help in attracting fresh foreign inflows which will help in containing the rupee".

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