The Reserve Bank of India's monetary policy committee (MPC) held key policy rates steady for the fourth straight time and committed to keeping liquidity tight, signalling a hawkish policy stance.
Bond market investors reacted with concern, driving the 10-year benchmark bond yield to a six-month high of 7.3412% after RBI governor Shaktikanta Das announced that RBI could consider open market sales of bonds to manage liquidity. The bonds were trading at 7.2197% before the announcement.
The MPC unanimously decided to keep the repo rate unchanged at 6.5%, with five out of the six members of the panel also voting to keep the policy stance unchanged at "withdrawal of accommodation" based on the rationale that transmission of the past rate hikes of 250 bps to bank lending and deposit rates is still incomplete.
The central bank also kept its inflation forecast unchanged at 5.4% in the current financial year and retained its economic growth projection unchanged at 6.5% despite signs of slowing global growth.
"We have identified high inflation as a major risk to macroeconomic stability and sustainable growth. Accordingly, our monetary policy remains resolutely focused on aligning inflation to the 4% target on a durable basis," said Shaktikanta Das, governor of RBI.
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