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India’s central bank keeps policy rate unchanged, rupee tumbles on surprise inaction

Published: October 5, 2018

STORY: The Reserve Bank of India (RBI) held interest rates unchanged at a policy meeting on Friday (October 05), 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.

The RBI’s monetary policy committee (MPC) left the repo rate at 6.50 percent. The panel however, shifted its policy stance to ‘calibrated tightening” from ‘neutral’.

While the RBI kept its rates unchanged, analysts expect the central bank to raise rates by at least 50 basis points more going ahead, as inflationary pressures become more pronounced.

The RBI also said it has been trying to ensure the foreign exchange market remains liquid and is not targeting any particular level.

“The RBI’s response to these unsettled conditions has been to ensure the foreign exchange market remains liquid with no undue volatility,” the central bank’s governor, Urjit Patel, said after monetary policy meeting.

The Indian rupee slumped to a new all-time low of 74.23 against the U.S. dollar, weakening from around the 73.65 ahead of the RBI policy statement. It has fallen more than 14 percent since January, making it the worst performing major Asian emerging market currency.

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