MUMBAI: The RBI left interest rates and required bank reserves unchanged on Monday, defying widespread expectations for a rate cut and warning that relaxing policy could worsen inflation. Bonds, stocks and the rupee all fell.
The Reserve Bank of India kept its policy repo rate unchanged at 8% and left the cash reserve ratio for banks at 4.75%, putting the onus on the government to take measures to revive flagging economic growth.
"Further reduction in the policy interest rate at this juncture, rather than supporting growth, could exacerbate inflationary pressures," the RBI wrote in its mid-quarter policy review.
The benchmark 10-year bond yield rose 9 basis points to 8.43% from levels before the announcement, while the new 10-year bond yield rose about 5 basis points.
The Sensex erased gains before the decision to fall 1.1%, while the rupee weakened against the dollar to 55.60/62 from around 55.35-55.40 before the decision.
"The Reserve Bank of India's action is clearly disappointing," said Sujan Hajra, chief economist at Anand Rathi Securities in Mumbai.
"Inflation remains a concern, but the slowing growth needed at least a 50-basis-point rate cut. The RBI will have to ease sooner or later, otherwise there will be further challenges to growth," he said.
After cutting its policy rate by 50 basis points in April, the RBI had been widely expected to leave rates unchanged in June.
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