Sensex extends losses as RBI holds policy rate

India's Central Bank, Wary on Inflation, Set to Keep Rates on Hold

RBI expected to keep policy rates unchanged

Policy repo rate under liquidity adjustment facility has been kept unchanged at 6.0 percent.Consequently, reverse repo rate under the LAF remains at 5.75 percent and marginal standing facility rate and the Bank Rate at 6.25 percent.

The RBI's six-member Monetary Policy Committee (MPC) announced the policy decision without any surprise for the financial markets.

Maintaining a hawkish stance, the Reserve Bank of India today maintained status quo on key interest rates even as revised its inflation forecast upwards.

The RBI said that the second quarter growth was lower than what was projected.

The MPC believes that a seasonal moderation in prices of vegetables, and fruits and the recent lowering of tax rates by the goods and services tax (GST) Council could mitigate upside pressures on inflation. "The recent rise in global crude oil prices may sustain, especially on account of the OPECs decision to maintain production cuts through next year", RBI said. The rate at which banks borrow money from the RBI by selling their surplus government securities to the central bank is known as "Repo Rate". BSE banks constituting 10 key banking stocks traded at 114 points or 0.40 per cent lower at 28,345 level. The decision on Wednesday would be aimed at striking a balance between strengthening the country's economic growth and securing the retail inflation target of 4 percent, plus or minus 2 percent on a durable basis, stated Scotiabank.

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Another source of RBI discomfort is that core inflation, which excludes food and energy prices, has remained stubbornly high at around 4.5 percent.

The Reserve Bank of India (RBI) kept its policy rate steady at a near seven-year.

"Against this backdrop, we expect the RBI to refrain from further rate cuts this week and for rest of FY18", said Radhika Rao, India economist at DBS Bank.

The figures showed that GDP accelerated to 6.3 percent in the three months to September after five quarters of slowing growth stretching back to early 2016.

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