RBI unexpectedly keeps interest rates unchanged

There are some who fear that demonetization could stall India’s stellar economic growth [Xinhua]
India’s central bank kept interest rates unchanged at 6.25 per cent on Wednesday, as the country’s economy continues to bear the weight of demonetization.
The move was unexpected as many had anticipated the bank would drop its interest rates to allow for increased borrowing.
The bank’s monetary policy committee said it needed more time to assess whether scrapping the 500- and 1,000-rupee notes would be detrimental for the economy.
Many fear that the policy will trim India’s GDP growth this year.
“Such withdrawal of money supply in the economy has drastically reduced transactions and exchanges, primarily for those sectors which use cash,” says economist Subhanil Chowdhury.
With a fall in transactions, economic activity has come to a standstill in many sectors. For example, the media reported that textile hubs like Tirupur and Surat and the jewelry market have been badly hit – workers are not being paid wages, lay-offs are taking place and sales have come down drastically, with many enterprises forced to shut down, Chowdhury wrote last month.
The RBI has already cut interest rates thrice this year – in January, March and October.
The BRICS Post with inputs from Agencies