RBI keeps policy rate unchanged in surprise move, rupee tumbles

Virginia Carson
October 5, 2018

Governor Urjit Patel arrives to attend a news conference after a monetary policy review in Mumbai, October 5, 2018. Five of the six panel members voted to leave the rate unchanged. "However, there is a probability of change in neutral stance too, as three successive rate hikes with a neutral stance could contradict RBI message", the research report said.

The domestic currency closed at a record low of 73.34, down by 43 paise or 0.59 per cent on Wednesday. On the domestic front, market participants will be keeping an eye on RBI policy statement and expectation is that the central bank could raise rates by 25bps, said Motilal Oswal. But since global commodity prices other than oil have moderated, it should mitigate the adverse influence on input costs, the central bank observed. The rupee has depreciated almost 15 percent this year, becoming the worst-performing currency in Asia apart Indonesia and the Philippines. Government on Wednesday said that it will allow state oil marketing firms to raise $10 billion in overseas loans to help them deal with a sharp rise in crude oil prices and a falling rupee currency.

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"The biggest policy anchor for rupee is high real rates".

The central bank's Monetary Policy Committee said that "global headwinds in the form of escalating trade tensions, volatile and rising oil prices, and tightening of global financial conditions pose substantial risks to the growth and inflation outlook".

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Mr Gandhi took aim at Prime Minister Narendra Modi yesterday, accusing him of remaining silent over the rupee crisis.

The RBI reiterated its target of keeping consumer inflation at 4.00 percent in the medium term on a "durable basis", and projected a rate of 4.8 percent by June 2019, slightly better than the 5.0 percent forecast it gave in August.

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