RBI Pauses On Rate Cuts Amid Rising Inflation

Central bank lowers GDP growth forecast for FY20 to 5 per cent

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Contrary to expectations of a policy rate cut, the Reserve Bank of India on Thursday hit the pause button amid worries over rising retail inflation. However, the central bank said there was room for a further rate cut in the future even as it was expecting the full impact of the previous rate cuts to play out amidst ample liquidity in the financial system.

In its 5th bi-monthly monetary policy review, the central bank cut the GDP growth projection for FY20 sharply to 5 per cent from 6.1 per cent projected earlier. In the previous monetary policy review, the GDP growth was revised downwards to 6.1 per cent from 6.9 per cent projected earlier.

The RBI upped the retail inflation projection for the second half of FY20 to 5.1-4.7 per cent against the earlier projection of 3.5-3.7 percent.

The repo rate, which is the interest rate at which the RBI lends funds to banks to help them overcome short-term liquidity mismatches, currently stands at 5.15 per cent.

Accomodative stance