The Reserve Bank of India’s key policy interest rate has now been cut to its lowest level since 2011.
“The decision of the MPC is consistent with an accommodative stance of monetary policy in consonance with the objective of achieving consumer price index inflation at 5 per cent by Q4 of 2016-17,” the central bank said in its statement.
Retail inflation dropped to a five-month low of 5.05 per cent in August.
Governor Urjit Patel, who briefed the media for the first time since his elevation, gave no hint of what the committee’s future stance on interest rates could be.
However, his colleague on the MPC and RBI Executive Director M.D. Patra hinted that there was scope for policy interest rates to ease further when he said the neutral rate is 1.25 per cent, which is lower than the 1.5-2 per cent regime that prevailed under the previous governor Raghuram Rajan.
The neutral rate is the difference between the risk free rate and inflation — a key determinant of the policy rate.
Market participants expect interest rates to ease further in the next policy review in December.
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