Editor's Take | RBI policy: Tough choices for MPC

Likely RBI intervention helps rupee recover from record low Edited By IANS | By IANS On Oct 5 2018- 09:22:25 Share

The fact that higher interest rates will compound the liquidity problem was a setback for the consensus view on the RBI policy.

Given the falling rupee and higher fuel prices, It was widely expected that the central bank would hike the repo rate to 6.75% to keep inflation in check.

India's benchmark 10-year sovereign yield fell to 8.04 per cent. The domestic currency turned weak by 65 paise to 74.23 against the dollar soon after the RBI announced its monetary policy. Of 15 economists surveyed by Mint, 14 expected the RBI to raise the repo rate, the rate at which it lends to commercial banks, to 6.75%. "However, there is a probability that the central bank would change the stance from "neutral" too, as three successive rate hikes with a "neutral" stance could contradict the RBI message", the report said.

Lowering the inflation forecast to a range of 3.9 per cent to 4.5 per cent for the second half of the year ending March, from 4.8 per cent previously, allows the MPC room to pause on rates, he said. The finance minister said on Tuesday that the economy was adjusting "quite well" to higher USA interest rates and the fall of the rupiah, asserting that many of its economic indicators were good.

The Reserve Bank of India will have to make a hard policy decision when it meets tomorrow, BAML says.

"The rupee has made a new record low today on back of consistent rise in the crude oil prices", Rushabh Maru, Research Analyst at Anand Rathi Shares and Stock Brokers, told.

China tight-lipped on disappearance of Interpol chief
Meng was appointed head of Interpol in 2016, and was due to serve until 2020. "Yellow notices" are issued for missing persons. Al Jazeera's Adrian Brow, reporting from Beijing , said China's silence is a "reflection of how sensitive this case is".

Contrary to market expectations, the monetary policy committee of the RBI kept the repo rate unchanged at 6.5%.

Lately, concerns over a rise in inflation rate, high crude oil prices and an outflow of foreign funds from the country's equity market has subdued the Indian currency.

"The inflation outlook calls for a close vigil over the next few months, especially because the output gap has virtually closed and several upside risks persist", the RBI said.

The RBI in a move to claim markets held a press-conference chaired by Governor Urijit Patel who said that the rupee is faring better against other currencies that are weakening against the dollar.

So far this calendar year, the rupee has been Asia's worst performing currency as it has fallen nearly 15 per cent.

A plunging currency may prompt the Reserve Bank of India to hike interest rates for the third time since June when it meets on Friday.

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