RBI surprises, keeps interest rates unchanged

Changes stance to calibrated tightening to maintain inflation targets

Mumbai: After back- to- back hike since June, the RBI on Friday kept interest rates unchanged, surprising markets that had expected a rate hike to support tumbling rupee and combat inflationary pressures from high oil prices. Vowing to keep the inflation rate under targeted 4%, RBI warned that volatile and rising oil prices, and tightening of global financial conditions pose substantial risks to growth and inflation.

Mumbai, Oct. 5: On a day the rupee breached the 74- mark against the dollar for the first time, RBI governor Urjit Patel said on Friday that the domestic currency is still better than its emerging market peers.

He maintained that the value of rupee is determined by market forces and RBI does not have any “target or band” around any particular level of the exchange rate.

He said the forex reserves of $ 400.5 billion as of end September are sufficient to finance 10 months of imports.

Mr Patel’s comments came as rupee crossed the 74- mark against the dollar on Friday afternoon after opening higher than its previous close at 73.52.

Addressing the press after announcing RBI’s fourth bi- monthly policy here, he said the rupee has experienced bouts of volatility since the monetary policy committee meeting in August.

The country has not been immune to global spillovers from external factors, he said.

“The rupee fall, in some respect, is moderate in comparison to several other emerging market market peers,” the governor said.

Ruling out any target for the currency, he said, “Our response to these unsettled conditions has been to ensure that foreign exchange market remains liquid with no undue volatility.”

However after back- toback hike since June, RBI kept rates unchanged, surprising markets that had expected a rate hike to support weakening rupee and combat inflationary pressures from high crude oil prices.

With five of its six members voting for a status quo, Reserve Bank’s monetary policy committee left repo rate at 6.50 per cent and changed policy stance to ‘ calibrated tightening’ from ‘ neutral’, which RBI governor Urjit Patel said meant there would be no rate cut in the current cycle.