The Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) decided to keep the policy repo rate unchanged in its December 2019 meeting, surprising the market. The MPC underlined the rising consumer price inflation as one of the reasons. In October, food prices rose as fast as 10.5 per cent in cities and by 6.4 per cent in rural areas (Chart 1).
While financial markets were hoping for a rate cut, the MPC signalled that it intends to wait until effective transmission happens. The real lending rate — deflated using headline inflation — has reduced by nearly 3 percentage points