India's central bank unexpectedly kept its key policy rate unchanged at 6.25 percent on Wednesday, despite calls for action in the face of an intense cash shortage that threatens to slam the brakes on the world's fastest-growing large economy. The Reserve Bank of India's (RBI) monetary policy committee voted 6-0 to leave the repo rate unchanged, saying it needed more time to assess if the recent cash squeeze would cause more lasting damage to the economy.
Pressure on the central bank and its governor, Urjit Patel, to act has grown since Prime Minister Narendra Modi stunned the country on November 8 by abolishing 500- and 1,000-rupee notes ($7.35-$14.70), removing 86 percent of the currency in circulation in a bid to crack down on the "shadow economy". While shortages of new bank notes are still being reported, and some companies' cash-reliant supply chains have been left in tatters, the government insists conditions will steadily improve by the end of the year. The RBI also said it expected the impact from the measures to ebb as new notes come into circulation, even as it trimmed its growth forecast for the year ending in March 2017.
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