Business RBI keeps repo rate, reverse repo rate unchanged

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Business RBI keeps repo rate, reverse repo rate unchanged

The rupee's plunge to a new record low of 73.77 against the dollar by falling 44 paise in early trade, too, weighed on investor mood.

The RBI has allowed commercial banks to dig into their statutory reserves to ease the liquidity crunch.

The Reserve Bank of India (RBI) may have revised downwards its inflation projections for 2018-19 and the first quarter of 2019-20, but it has flagged six key risks calling for "a vigil over the next few months". The government welcomed the MPC's assessment and its decision to keep the policy rate unchanged.

The rupee rout on Wednesday has provided a ideal backdrop for the 3-day bi-monthly monetary policy review meeting by the Reserve Bank of India (RBI) in Mumbai.

The rupee, which is the worst-performing major currency is Asia, has dropped about 7 per cent since August when the RBI last raised rates. "Ind-Ra, therefore, believes that one more rate hike this fiscal is a possibility and can not be ruled out", Ind-Ra Principal Economist Sunil Kumar Sinha.

But in a surprise decision, the monetary policy committee led by governor Urjit Patel voted 5-1 to leave the repurchase rate at 6.5 per cent on Friday. Mr. Surendra Hiranandani, Chairman and MD of House of Hiranandani, spoke to Qrius about how sharply the currency and equity market reacted as soon as another rate hike was anticipated to curb inflationary pressures.

The rupee is the worst performing emerging market currency having lost nearly 14 percent since January this year.

Mumbai: With RBI keeping the key rates unchanged on Friday, the investor sentiments' left the markets bleeding with Sensex down over 792 points.

"Focus would now shift to the RBI monetary policy meeting".

The rise in minimum support price for agri-commodities in domestic market added with rising crude in the global scenario has already triggered inflation concerns in the country.

"It seems like RBI chose financial stability over rupee because there is no strong inflation pressure imminently".

"In terms of oil impact, we believe 10% rise in oil causes headline inflation to move higher by about 0.6%", Garg said. "Going forward there are only two options, either we increase rates or we keep them steady". As things stand, inflation is expected to touch 4.5% by the end of the current fiscal year.

Analysts said the rising oil prices are hampering growth and raising interest rates may be inevitable.

This ties in directly to the current volatility in global financial markets, which will further increase the upside risks to inflation in the coming months.

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