Despite high crude oil prices and a falling rupee, the Reserve Bank of India (RBI) on Friday sprung a surprise by not hiking interest rates. The central bank maintained status quo by keeping key rates unchanged. The repo rate stands at 6.5 percent and reverse repo rate at 6.25 percent.
However, the RBI did change its monetary policy stance from 'neutral' to 'calibrated tightening'. Five of the six member monetary policy committee (MPC) voted against a rate hike. The sixth member, Chetan Ghate, voted for an increase in the policy rate by 25 basis points.
Despite high fuel prices, the central bank lowered its inflation forecast. It expects consumer price index (CPI) at 4 percent in the July to September quarter, 3.9 percent in the October to December quarter and 4.5 percent in the January to March quarter. The RBI said a decline in food inflation is the key reason behind its downward inflation outlook.
The central bank doesn't seem too be worried on the macro front. It kept the FY19 GDP growth target unchanged at 7.4 percent. It further expects GDP to grow at 7.6 percent in FY20 and 7.4 percent in the second quarter of this fiscal.
The RBI also sees government to remain committed towards fiscal prudence and keep fiscal deficit at 3.3 percent, which is the target set by the central government.
Watch CNBC-TV18’s Latha Venkatesh further analyses the monetary policy committee announcement.