In Surprise Move, RBI Leaves Interest Rates Unchanged; Rupee Slips Below 74-Mark

New Delhi: The monetary policy committee (MPC) of India’s central bank surprised market watchers by keeping interest rates unchanged, in a development that will have consequences for the already-deepening turmoil in currency markets.

According to a Reserve Bank of India (RBI) statement, the repo rate was left unchanged at 6.5%, in a 5-1 vote. The MPC also kept the reverse repo rate the same at 6.25%.

The panel’s decision comes at a difficult time for Indian policy-makers. While price pressures still remain moderate, the risks to increased inflation have risen. In August 2018, consumer inflation clocked in at 3.69%, which is well within the RBI’s inflation target.

Also Read: Sensex Crashes by Over 800 Points as Investors Get Spooked by Rupee Fall

More importantly though, in the last three months, the currency and external sector risks have become part of a heated political debate. Brent crude oil prices have risen more than 15%, hitting over $80 a barrel, with some analysts projecting it to go up to $100 by the beginning of 2019.

The rupee has also fallen 7% just in the last three months.

Both crude oil and rupee factors are expected to feed into higher inflation in the months leading up to the 2019 general election.

Consequently, the decision to not hike interest rates will have an impact on the rupee. In the minutes after the RBI’s announcement became public, the currency slipped past the 74-mark.

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