Against Street expectations, RBI keeps repo rate unchanged at 6.50 per cent

Andrew Cummings
October 5, 2018

India's currency fell Wednesday to its lowest-ever level against the USA dollar.

Mr Khoon Goh, head of Asia research at ANZ Banking Group in Singapore, said the mix of strong United States data and the Fed chair's comments bumped up the dollar and USA bond yields, putting downward pressure on Asian currencies. The prospect of a more aggressive Fed also rattled regional equities.


A surge in global crude prices, a fall in the rupee, hardening bond yields and selling by foreign investors affected sentiment in the equity market with the benchmark indices shedding more than 2% each to close at four-month lows.

"On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) chose to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.5 per cent", RBI said in a statement on Friday. "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", the RBI said in its policy statement, adding that is was vital "to further strengthen domestic macroeconomic fundamentals". It also hit a fresh 20-year high against the Indonesian rupiah.


It comes just one day before the Indian central bank is expected to raise rates on Friday to prop-up the rupee. The comments raised the possibility of another Bank Indonesian rate hike before mid-December although it has already raised interest rates five times since mid-May. The rupee has depreciated around 15% in 2018 and is the worst-performing currency in Asia. "The rupee hit yet another record low today and in the near term, it doesn't look like there's any respite coming".

The decline steepened in recent weeks as rising crude price - India imports two-thirds of its oil needs - and a sell-off by investors in emerging markets cranked up the pressure on the country's external balances.


India now imports more than two-thirds of its oil needs.

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