RBI keeps repo rate unchanged at 6.5%

Devin Lawrence
October 5, 2018

"Breaking: Rupee slips to 73.77. It's not breaking - it's Broken".

With a general election due by May next year, Prime Minister Narendra Modi's Hindu nationalist party will want to campaign on strong economic growth and success in containing inflation.

"Fuel and gas prices are on fire and markets are scurrying. Till when will the 56-inch chest be on "silent mode", he tweeted and asked what happened to the promise of "achche din".

While no changes have been made to the repo rate, the bank has changed its stance from "Neutral" to "Calibrated Tightening". Indonesia has a large current account deficit stemming from its oil imports.

The Reserve Bank of India (RBI) held interest rates unchanged at a policy meeting on Friday, sending the rupee tumbling to a record low and stunning analysts who had expected a rate increase to combat inflationary pressures arising from high oil prices.

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Investors remained concerned over sustained foreign capital outflows and soaring crude oil prices that crossed the United States dollars 85 per barrel.

He said: "You can not wish away the depreciation in the rupee if you are a current account deficit country".

Oil prices stood around four year highs on Thursday.

"For bond markets, a 25 bps hike accompanied by a hawkish stance could trigger the 10-year bond yield to rise to 8.25 per cent", Rao told Reuters after yields surged on Thursday. "The RBI is ready to keep real rates high because the policy mandate is to anchor inflation", said Anindya Banerjee, deputy vice president, currency derivatives at Kotak Securities. Reportedly, several banks have been raising the interest rates even before the RBI has raised the repo rates in June.

Brent - the worldwide benchmark for crude oil - crossed $86 a barrel mark to trade near its highest levels since 2014.

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