RBI Holds Interest Rates Steady, Maintains Accommodative Stance

Members of the Reserve Bank of India's Monetary Policy Committee (MPC) decided to keep repo rates or interest rates at which the RBI lends money to banks steady. While announcing the decision of the MPC, the RBI Governor, Shaktikanta Das said that the repo rate was left steady at 4 per cent, while the MPC decided to maintain an accommodative policy stance.

Most analysts were not expecting a rate cut, as seen in some of the previous policies. India is facing a unique situation, where there is high inflation and low demand, which typically points to stagflation and this may have prompted the MPC to rates.

The problem is that both retail and whole sale price inflation has been shooting up. Retail inflation in Oct stood at a robust 7.61 per cent, the highest in six years (since May, 2014), and way above the tolerance levels of the Reserve Bank of India.

"In our view the core inflation will continue to record a steady uptick in MoM terms over the next few months, with the strengthening of the economic recovery," ICRA had stated last month.