Why RBI Kept Its Key Lending Rates Unchanged

Mumbai: Sustained inflationary risks, rising trade tensions, tightening of global financial conditions and slowing down of global demand led the RBI to keep its key lending rate and 'calibrated tightening' stance unchanged on December 5, the RBI said.

This was despite fall in oil prices and acceleration in investment activity, as per the minutes of RBI's latest Monetary Policy Committee (MPC) meeting released on Wednesday.

"The time is apposite to further strengthen domestic macroeconomic fundamentals. In this context, fiscal discipline is critical to create space for and crowd in private investment activity," the central bank said.

The MPC noted that the benign outlook for headline inflation is driven mainly by unexpected softening of food inflation and collapse in oil prices in a relatively short period of time.

Excluding food items, inflation remains "sticky and elevated", and the output gap remains closed. It also noted that even as escalating trade tensions, tightening of global financial conditions and slowing down of global demand poses some downside risks.

"The decline in oil prices in recent weeks, if sustained, will provide tailwinds. The acceleration in investment activity also bodes well for the medium-term growth potential of the economy," it added.

On December 5, the RBI held its key lending rate for commercial banks unchanged at 6.5 per cent for the second time in succession. It also maintained the 'calibrated tightening' stance adopted in the last policy review conducted in October.

The decision to keep policy rate unchanged was taken unanimously by the six-member MPC headed by then RBI Governor Urjit Patel. However, government nominee Ravindra Dholakia had voted to change the stance back to 'neutral'. (IANS)

Also Read: India’s Central Bank Keeps Key Lending Rate Intact At 6.5%