The Reserve Bank of India retained its key interest rate unchanged at a level of 6.25%. Thus, the bank refuted forecasts that will reduce the rate after the surprise decision of the government to withdraw banknotes with the highest nominal. The lower interest rates encouraged the consumer spending, which is expected to shrink sharply because of the measure of the government’s demonetization. Moreover, lower rates can accelerate inflation.
“Given the lowering of interest rates in October, the monetary policy committee decided that at this stage additional reduction is not appropriate”, said the governor of Reserve Bank of India, Urjit Patel.
The regulator also lowered its forecast for growth in gross value added from 7.6% to 7.1%.
The gross value added is different from the Gross Domestic Product (GDP), which is traditionally used to measure economic growth. The gross value added shows what can be dynamic in GDP.
Last week increase pressure on the bank to cut interest rates. A number of analysts had expected a decline of 25 basis points after the economy reported weaker than expected growth of 7.3% in the third quarter.
The analysts expect consumption to be further delayed after the bulk of the cash was withdrawn from circulation, and this will adversely affect the economy as a whole. The government aims to eradicate illegal means.
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