RBI keeps the high interest rate intact. The rather adamant monetary policy has evoked negative sentiments and the stock market has reacted with a strong red.
The continuation of the tight monetary policy by maintaining higher interest rate may lead to further slowdown of industrial activity- especially in the manufacturing sector. Index of industrial production has recorded a dismal slowing growth during the last two quarters in the background of high interest rate. GDP growth rate declined from 6.9% in Q2 to 6.1% in Q3. Analysts attribute this fall in economic growth to RBI’s dear money policy.
Explanation for the continuation of the hard interest rate by the central bank is that inflation continues to be a matter of concern for it. The RBI has acknowledged deceleration in growth in the monetary policy declaration but continues to stress taming of inflation.
“Recent growth-inflation dynamics have prompted the Reserve Bank to indicate that no further tightening is required and that future actions will be towards lowering the rates. However, notwithstanding the deceleration in growth, inflation risks remain, which will influence both the timing and magnitude of future rate actions.”- the central bank has observed.