India central bank holds rates as expected to further tame prices
2024.06.07 01:47
By Swati Bhat and Sudipto Ganguly
MUMBAI (Reuters) – The Reserve Bank of India (RBI) kept its key interest rate unchanged on Friday in a widely expected move as robust economic growth continues to provide space to focus on bringing down inflation towards its medium-term target of 4%.
The Monetary Policy Committee (MPC), which consists of three RBI and three external members, kept the repo rate unchanged at 6.50% for an eighth straight policy meeting.
Four out of six MPC members voted in favour of the repo rate decision, Governor Shaktikanta Das said in his statement.
The central bank wants to ensure that inflation aligns with the target of 4%, Das said.
India’s economy, Asia’s third-largest, grew faster than expected in the first quarter but a surprising outcome in the recently concluded national elections rattled markets. A weakened mandate for the ruling Bharatiya Janata Party-led National Democratic Alliance has raised concerns about a slower pace of fiscal consolidation alongside higher welfare spending.
All but one of 72 economists in a Reuters poll had expected the MPC to hold the repo rate steady at 6.50%. Most economists believe the 6.50% rate is the peak of the current monetary cycle.
The committee decided by a majority of four out of six votes to retain the ‘withdrawal of accommodation’ stance.
“RBI’s status quo on rates and stance was in line with market expectations but the split in voting patterns clearly shows the increasing probability towards a pivot in the policies ahead,” Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, said.
Until April, only one of six committee members had voted against the status quo in rates and policy stance.
The MPC last changed rates in February 2023, when the policy rate was raised to 6.5%.
India’s benchmark yield rose 2 basis points to 7.02% after the policy decision while the rupee was trading at 83.4550 against the dollar versus 83.4575 ahead of the speech.
India’s economy remains resilient, Das said, adding he expects manufacturing activity to gain ground and consumption recover.
Rural demand is also being aided by a pick-up in farm activity, he said.
The MPC raised its full-year GDP growth forecast to 7.2% from 7% earlier and but kept its inflation projection unchanged, expecting it to average 4.5% in the fiscal year to March 2025.
GDP data last week showed the economy expanded at a faster-than-expected pace of 7.8% in the March quarter, taking the South Asian nation’s full year growth to 8.2%.
Annual retail inflation eased slightly to 4.83% in April from 4.85% in March but was still well above the MPC’s target.
