RBI unexpectedly hits pause button on interest rate cut

Mumbai : The Reserve Bank of India on Thursday unexpectedly hit a pause button on cutting interest rate as it gave more importance to prevailing inflation pressure and rising food prices over a worrying slowdown in the economy.

After five consecutive cuts in interest rates this year, the six-member Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, unanimously voted to hold the key repo rate at 5.15 per cent and reverse repo rate at 4.90 per cent.

Bankers and economists had widely expected the central bank to cut rates for the sixth time to support a slowing economy, whose growth rate slipped to a six-year low of 4.5 per cent in the September quarter from 7 per cent a year back.

The RBI reiterated that it would maintain an accommodative stance as long as necessary to revive economic growth but cut its GDP growth forecast to 5 per cent for the 2019-20 fiscal from the earlier estimate of 6.1 per cent.

Das said the pause was temporary and the central bank wanted to assess the effect of its policy after reduction of 135 basis points in five policies this year. Banks have passed on only 44 basis points of the rate cuts to borrowers, he said.

"There is space available for further monetary policy action," Das told reporters here, adding that there is a need to "maximise the impact of rate reductions".

According to the RBI, the need at this juncture is to address impediments, which are holding back investments in the economy.

Das said the central bank cannot "mechanically" keep cutting interest rates every time and that it will wait for the impact of the coordinated measures taken by the government and the RBI over the past few months to push growth to play out before taking a call on rates.

While there are green shoots in the economy, it is too early to take a call on their sustainability, Das said.