“Recent growth-inflation dynamics have prompted the Reserve Bank to indicate that no further tightening is required and that future actions will be towards lowering the rates. However, notwithstanding the deceleration in growth, inflation risks remain, which will influence both the timing and magnitude of future rate actions,” the RBI stated in a release.
Markets were disappointed as there was no hint from the RBI Governor of a rate cut. The BSE Sensex and the NSE drifted lower as soon as reports of the RBI holding rates were announced. Banking stocks like State Bank and ICICI Bank lost ground following the RBI decision to keep rates unchanged.
RBI might now want to take a look at the Union Budget and the fiscal consolidation measures adopted before a decision on rate cuts is taken.