The Reserve Bank of India's Monetary Policy Committee has left its benchmark repurchase rate on hold at 5.50 percent at its policy review held today, in line with the consensus forecast. Officials cut this rate by 100 basis points over the previous three meetings after the rate had been left on hold for two years.

Data released since the RBI's previous meeting in June have shown headline CPI inflation moderating from 3.16 percent in April to 2.82 percent in May and 2.1 percent in June, back below the mid-point of the RBI's target range of two percent to six percent. This decline was anticipated by officials and largely reflects the impact of food prices. PMI survey data have shown strong conditions, though industrial production growth has moderated in recent months.

In the statement accompanying today's decision, RBI officials again highlighted the recent decline in inflation and advised that favourable weather conditions will likely further reduce food inflation pressures. With the near-term inflation outlook now more benign than anticipated earlier officials have lowered their inflation forecasts for this fiscal year from 3.7 percent to 3.1 percent. Officials expressed concerns about headwinds emanating from prolonged geopolitical tensions the impact of a challenging global environment but expressed confidence that domestic demand will be supported by supportive monetary and fiscal policy and congenial financial conditions. They forecast GDP growth of 6.5 percent this fiscal year.

Reflecting this assessment, officials concluded that policy settings should be kept on hold today as they wait for further transmission of the front-loaded rate cuts to the credit markets and the broader economy. They also announced that they retain the policy stance as"neutral as they consider incoming data.

The consensus calls for the RBI to wait for more data on whether the economy is really slowing. The bank cut rates by a larger than expected 50 basis points in June and so will hold its fire this time, most forecasters say.

The Reserve Bank of India (RBI) issues six Bi-monthly Policy Statements a year. During these announcements the RBI will signal any shifts in its monetary stance, particularly with reference to the benchmark repo interest rate and its cash reserve ratio (CRR). The Governor will also update the Bank's view of recent economic developments and provide new forecasts for inflation and growth. A 4 percent inflation target with a +/- 2 percentage point tolerance band was formally implemented in August 2016 and will be overseen by a new six-member Monetary Policy Committee (MPC).

Although the RBI monitors many economic indicators - as indeed all central banks do - the RBI most closely monitors inflation. The level of interest rates affects the economy. Higher interest rates tend to slow economic activity while lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, fewer homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or for those who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.

The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated. Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India. The Reserve Bank's affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act.

The Reserve Bank of India performs this function under the guidance of the Board for Financial Supervision (BFS). The Board was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India. Primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies. Its function is to advise the Central Board on local matters and to represent territorial and economic interests of local cooperative and indigenous banks; to perform such other functions as delegated by Central Board from time to time. Primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies. The Board is required to meet normally once every month. It considers inspection reports and other supervisory issues placed before it by the supervisory departments.