The Reserve Bank of India on Thursday kept the key policy rate unchanged at 5.15% and decided to continue with its accommodative stance to support the economy.
The central bank also revised GDP growth downwards to 5% for 2019-20 from 6.1% projected in its October policy.
The RBI said that monetary policy easing since February 2019 and the measures initiated by the government over the last few months are expected to revive sentiment and spur domestic demand.
"The Monetary Policy Committee recognises that there is monetary policy space for future action. However, given the evolving growth-inflation dynamics, the MPC felt it appropriate to take a pause at this juncture," the RBI said in its fifth bi-monthly monetary policy for this fiscal.
The panel decided to continue with the accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target.
All the six members of the MPC voted in favour of a rate pause.
“Inflation is rising in the near-term, but it is likely to moderate below target by Q2 of FY21. It is, therefore, prudent to carefully monitor incoming data to gain clarity on the inflation outlook. Similarly, the forthcoming union 7 budget will provide better insight into further measures to be undertaken by the Government and their impact on growth,” the central bank said.
The CPI inflation projection is revised upwards to 5.1-4.7% for H2 FY20 and 4-3.8% for H1 FY21.
“GDP growth for Q2 turned out to be significantly lower than projected. Various high frequency indicators suggest that domestic and external demand conditions have remained weak. Based on the early results, the business expectations index of the Reserve Bank’s industrial outlook survey indicates a marginal pickup in business sentiments in Q4,” RBI said in a statement.
As per the central bank, improved monetary transmission and a quick resolution of global trade tensions are possible upsides to growth projections. However, downside risks to the same could be a delay in revival of domestic demand, a further slowdown in global economic activity and geo-political tensions.
Between February and October 2019, the RBI has reduced repo rate by 135 basis points.
With PTI inputs