The Reserve Bank of India unexpectedly kept the policy interest rate on hold on Wednesday, despite calling current inflation too high, citing the prospect of easing retail prices and its concerns about the weak domestic economy.
The benchmark 10-year bond yield fell as much as 15 basis points on the day to 8.76 percent after the policy review.
The partially convertible Indian rupee was trading at 61.81/82 per dollar versus its previous close of 62.01/02.
Lakshmi Iyer, Chief Investment Officer ( Debt) & Head Products, Kotak Mutual Fund
RBI decision to maintain the policy status quo pleasantly surprised the market, which was expecting a 25 bps rate hike. The central banker may be attributing the recent resurgence in the WPI inflation to sharp spikes in vegetable prices. The RBI seems to be of the view that the lag effect of earlier rate hikes; and the onsetting kharif supply, may help temper down the inflation. Therefore this policy pause provides the central banker with the opportunity to calibrate its stance. This pause also provides the RBI with more headroom to take conducive measures, were the US Fed tapering effects to be adverse.