Crushing the hopes of industry seeking a revival in the economy and consumers expecting some relief in their EMIs, the Reserve Bank of India (RBI) today refused to cut interest rates that shocked stock markets which had been widely anticipating such a move.
Given the sharp slowdown in growth of the economy, the RBI move to keep the benchmark repo rate unchanged and not even ease liquidity through a CRR cut surprised all sections as a cut had almost been factored in.
The RBI chose to give priority to containing inflation over reviving growth. RBI Governor D Subbarao said in his monetary policy review that further reduction in the policy interest rate at this juncture, rather than supporting growth, could exacerbate inflationary pressures.
The RBI said that while growth has moderated significantly, headline inflation remains above levels consistent with sustainable growth. It also highlighted that the government has not taken enough measures for fiscal consolidation to enable a rate cut and that interest rates play a small role in investments.
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