RBI keeps interest rates unchanged, rupee falls, Sensex tanks

In a surprise move, the Indian central bank has left key policy rates unchanged despite rising crude oil price and depreciation of the local currency. The benchmark index was at 34,481.64, down 687.52 points or 1.95 per cent post the announcement. 

The Monetary Policy Committee (MPC) kept policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50 per cent post its fourth bi-monthly meet held on Friday. MPC changed its stance from neutral to 'calibrated tightening'.

In anticipation of this move, the Indian rupee breached Rs. 74.11 per dollar in afternoon trade. The rupee opened at Rs. 73.64 against the dollar on Friday. 

The RBI Governor, Urjit Patel acknowledged the headwinds of tariff wars and rising oil prices experienced by the emerging markets. However, he added that the rupee faired better than other emerging market currencies. He also said that the price of Indian crude basket has gone up by US$10 since the last policy meeting, while the outlook for food inflation will remain benign. 

RBI has targeted GDP growth at 7.4 per cent and CPI inflation was seen at 4 per cent in July-Sep and forecast at 3.9-4.5 per cent in October-March. RBI expects the central fiscal deficit for FY19 at 3.3 per cent.