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RBI keeps interest rates unchanged; shifts policy stance to neutral

India's Central bank kept key policy rates unchanged to 6.25 per cent and shifted its policy stance to `neutral' from…

RBI keeps interest rates unchanged; shifts policy stance to neutral

(Photo: SNS)

India's Central bank kept key policy rates unchanged to 6.25 per cent and shifted its policy stance to `neutral' from `accommodative' in bid to control inflationary expectations in a slowing economy. Stocks fell.

Governor Urjit Patel, under fire from his less than satisfactory handling of the demonetisation process, said in a statement “inflation is edging up on the back of rising energy prices and a mild firming up of demand…. the committee decided to change the stance from accommodative to neutral while keeping the policy rate on hold to assess how the transitory effects of demonetisation on inflation and output gap play out.''

Meanwhile, the benchmark Nifty dropped 27 points to 8,717 points soon after the announcement as traders surmised that expectations of a further cut in interest rates will not be fulfilled.

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The Nifty surged 6 per cent in the past month on a combination of pre-budget expectations, a fiscally prudent annual budget for the year to March 2018 and sustained buying into beaten down blue chips post demonetisation.

Indian banks are flush with cash deposited by citizens after the government's shock move to remove the legal tender status of the 1,000-rupee and 500-rupee notes on November 8. Prime Minister Narendra Modi's move to curtail the flow of illegitimate cash in the economy resulted in banks getting more than $320 billion in deposits.

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