India's central bank kept its policy rate on hold on Wednesday and unexpectedly signaled an end to its longest easing cycle since the global financial crisis, saying inflation poses a bigger threat to the economy than a crackdown on "black money."
After keeping the repo rate on hold at 6.25 percent for a second meeting in a row, the RBI also changed its stance to "neutral" from "accommodative", stunning bond investors who had bet the RBI would ease by 25 basis points, either this week or at its next policy review in April.
The new stance could effectively mark an end to a period in which the RBI cut interest rates by a total of 175 bps from January 2015 to October 2016, starting with previous Governor Raghuram Rajan and continuing under Urjit Patel.
The vote by the monetary policy committee to hold rates steady was 6-0, marking its third straight unanimous decision since being established in September.
It is a decision that differs sharply with some private forecasters, who believe the RBI is under-estimating the impact of the cash crackdown.
"It's quite disappointing that RBI has come out with a strongly hawkish policy at a time when growth slowdown has become very acute in the aftermath of demonetization," said Rupa Rege Nitsure, group chief economist at L&T Financial.