In an unexpected move, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Thursday kept key interest rates unchanged, as it decided to take a pause owing to “evolving growth-inflation dynamics" after five consecutive rate cuts totaling to 135 basis points in 2019.

The RBI said it will maintain an “accommodative stance as long as it is necessary".

The repo rate—the rate at which banks borrow from the RBI—remains unchanged at 5.15%. This is contrary to the result of a Mint survey, wherein eight of 10 bankers and economists expected a 25 basis points cut. The six members of the MPC unanimously voted to hold rates in the December policy.

RBI also sharply reduced its growth forecast for 2019-20 to 5% from 6.1%, with the committee noting that a delay in revival of domestic demand, further slowdown in global economic activity and geo-political tensions could pose downside risks to growth.

India’s economy grew at 4.5% in July-September, the weakest pace in more than 6 years.

RBI also revised its inflation forecast for the second half of the current fiscal to 4.7-5.1% from 3.5-3.7%. This comes after headline inflation rate based on consumer price index (CPI) rose to 4.62% in October, breaching the medium-term target of 4% for the first time since July 2018.

Here are the highlights of comments made by RBI Governor Shaktikanta Das and other MPC members in a post-policy press conference today:

  • Inflation will rise in near term, but will ease Q2FY21 onwards
  • There is a case for looking through the current spike in inflation
  • Food inflation will remain “very high" in Jan-Mar FY2020
  • Inflation targeting, price controlling is the primary objective of RBI
  • Would like to pause, watch inflation trajectory, and get greater clarity
  • Have seen some green shoots in the economy but it is too early to comment
  • We are not worried, but need greater clarity from forthcoming Budget proposals
  • Timing of a rate cut is important to optimise its impact
  • We need to give time for 135 bps rate cut so far to play out
  • Forthcoming Budget will provide MPC insight into further action
  • Monetary transmission has been quick in various money markets, debt market segments
  • Transmission of rates is expected to improve going forward
  • Cannot rule out that GST, direct tax collections have fallen
  • Monetary, fiscal policymakers continue to work together to revive growth
  • There is good coordination between the RBI, government
  • There is space for further monetary policy action
  • MPC decided to pause, evaluate developments for readiness to act
  • Fiscal deficit in Q2, Q3 is usually high due to lower revenue collection
  • Fiscal deficit narrows in Q4 as tax collections improve by end of year
  • Price stability (inflation) is MPC’s main target keeping in mind growth
  • Have taken measures in the past to ensure greater flow of credit from banks to NBFCs
  • Growth in bank credit to NBFCs was more than 26% in November
  • RBI is regularly monitoring top 50 NBFCs
  • RBI is making deep dive into balance sheets of top 50 NBFCs
  • Have good idea about NBFCs that are vulnerable
  • Will ensure that no large, systemically important NBFCs collapse
  • Credit flow to the NBFC sector is slowly reviving at pre-IL&FS collapse rates
  • RBI is best placed to assess the situation in the NBFC sector
  • RBI is best placed to refer some vulnerable NBFCs to the NCLT
  • Will have to see what impact telecom tariff hikes will have on core inflation
  • RBI is assessing the cause (at HDFC Bank Ltd) that led to suspension of net banking services