India Monetary Policy January 2017

India

India: Central Bank holds interest rates in surprise move

February 8, 2017

The Reserve Bank of India (RBI) decided to keep monetary policy unchanged at a scheduled meeting on 7-8 February, surprising market analysts who had expected a cut. The RBI held the repurchase rate at 6.25%—an over five-year low. All six members of the monetary policy committee voted to keep the rate unchanged. Accordingly, the Bank also decided to keep the marginal standing facility rate (Bank Rate) at 6.75% and the reverse repurchase rate at 5.75%.

The Bank’s decision to maintain its policy stance was driven by increased global uncertainty and a number of upside risks to the inflation outlook. Rising energy prices, volatile exchange rate markets and some effects from the seventh pay commission are all upside risks to the Bank’s outlook and were factored into the interest rate decision.

Looking forward, the RBI signaled a pause in its easing cycle and changed its stance from accommodative to neutral. Any change in the repurchase rate will likely be data driven and considering that the RBI projects a pick-up in momentum next fiscal year, some of our panelists see the repurchase rate on hold in the medium term.

While others are still taking the latest developments into account and project that the repurchase rate will average 6.03% at the end of FY 2016. For FY 2017, panelists see the repurchase rate ending the year at 5.91%.


Author: Angela Bouzanis, Senior Economist

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India Monetary Policy February 2017 0

Note: Marginal Standing Facility (MSF) Rate, Repo Rate and Reverse Repo Rate in %.
Source: Reserve Bank of India (RBI).


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