RBI lowers growth forecast to 5 per cent; keeps repo rate unchanged

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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.

This year, the RBI has already cut the repo rate by 135 basis points to a nine-year low.

"India's sovereign bonds declined the most in more than two months, the benchmark 10-year bond yield bonds rose 13 basis points to 6.60 per cent, after central bank keeps policy rate unchanged".

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The committee said growth had slowed down and inflation was expected to rise in the near term and moderate below the target only by July-September 2020. The Monetary Policy Committee (MPC) retained its accommodative policy stance, signaling rate increases continue to be off the table. The central bank raised its inflation forecast for the second-half of the fiscal year to 4.7%-5.1% from 3.5%-3.7% seen previously.

The central bank, however, slashed its annual growth forecast to 5 percent from 6.1 percent, as consumer demand and manufacturing activity contracts.

All five members of the MPC have voted in favour of holding rates.

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Ruling out any rate cuts soon, SBI house economists said headline inflation is set to scale past 5.4 percent in the next few months, rendering a rate cut in February or even in April as a hard proposition. However, several measures already initiated by the Government and the monetary easing undertaken by the Reserve Bank since February 2019, are gradually expected to further feed into the real economy, it said. Since the beginning of the current fiscal, the forex kitty has gained by USD38.8 billion as of December 3, the largest in recent year, he added.

Das also expressed satisfaction with bankers for passing its rate cuts to borrowers, saying that the monetary transmission has been full and reasonably swift.

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