Contrary to market expectations of a third in a row rise in repo rate in the wake of the sliding rupee, the Reserve Bank of India (RBI) retained the key lending rate at 6.5 per cent.
The reverse repo rate, the one at which the central bank borrows from commercial banks, also stayed unchanged at 6.25 per cent.
Analysts expected a 50 basis point rise in the repo rate when it was raised by 25 basis points in the last two monetary policy reviews.
Incidentally, the rupee breached the 74-mark against the US dollar for the first time immediately after the RBI announcement.
Bank Governor Urjit Patel said in comparison to other emerging markets, the fall in the rupee was ‘moderate’. Reports said that barring one, five members of Monetary Policy Committee (MPC) were in favour of leaving the rates unchanged.
A rate hike in the backdrop of the falling rupee coupled with the rising oil import bill over the last two months had made a rate hike imminent. With the RBI deciding not to go for the increase, concerns over liquidity have heightened and reflections of this were seen in the stock market.