“The Indian economy presents a picture of resilience and momentum. Growth remains resilient and robust, surprising everyone. There is no plan to loosen interest rates as inflation continues to be the top priority for the central bank,” ,” Reserve Bank of India (RBI) Governor Shaktikanta Das
MUMBAI:
The Reserve Bank of India on Friday raised its fiscal year growth forecast on the back of a robust economy and flagged continuing tight monetary policy while it keeps watch over inflation risks.
The RBI expects the economy to expand 7% in the current fiscal year from 6.5% after stronger than expected growth in the July-September quarter.
“The Indian economy presents a picture of resilience and momentum,” Reserve Bank of India (RBI) Governor Shaktikanta Das said. “Growth remains resilient and robust, surprising everyone,” he said.
The outlook for inflation, however, remains uncertain, Das said.
That prompted the central bank’s six-member monetary policy committee, consisting of three RBI and three external members, to keep the repo rate unchanged at 6.50%, for the fifth consecutive meeting, and in line with the unanimous consensus in a Reuters poll.
The vote on the repo rate decision was also unanimous.
The RBI had raised the repo rate by a total 250 basis points (bps) since May 2022 in efforts to cool surging inflation, which dropped to a four-month low of 4.87% in October, but is expected to remain above the RBI’s 4% medium-term target for some time.
The near-term outlook is “masked by risks to food inflation,” said Das, which might lead to an uptick in November and December even though core inflation, which excludes volatile food and fuel prices, has broadly moderated.
The central bank projected consumer inflation at 5.4% for 2023-24, unchanged from its previous projection.
Das further said there is no plan to loosen interest rates as inflation continues to be the top priority for the central bank.
Speaking to reporters at the central bank headquarters here, Das clarified that the inclusion of “over tightening” in his statement while announcing the fifth consecutive status quo in rates, should not be construed as anything else.
A “loosening” in rates is not on the table, Das added.
Making it clear that inflation is the top priority for the central bank, Das said a few months of satisfactory data — the headline number dropped to 4.87 per cent in October — should not lead to any complacency and added that we have a long way to cover on inflation management.
Deputy Governor Michael Patra said looking at the economic growth in the first half and the high-frequency data for October and November, the upward revision in FY24 GDP growth rate at 7 per cent is a “conservative estimate”.
The Governor said it is very difficult to give a forward guidance on the policy, terming the future as “very fickle” where any shock can hit any economy.
Das also said that at present, foreign investors and regulators have a growing confidence in our economy.
The MPC maintained its policy stance of “withdrawal of accommodation” to ensure inflation progressively aligns with the committee’s target while remaining supportive of economic growth.
Monetary policy will remain actively disinflationary, Das said.
Economists expect rates to stay on hold for some time.
“The economy is performing exceptionally well, which limits any immediate need for looser policy,” said Shilan Shah, deputy chief emerging markets economist at Capital Economics.
“We maintain our call for a prolonged pause on repo rate at 6.5% well into financial year 2024-25,” said Suvodeep Rakshit, senior economist at Kotak Institutional Equities. “The good part is that growth remains resilient and core inflation remains under check.”
The Indian rupee was little changed at 83.3425 to the dollar while equity markets kept their gains following no change to the policy rate and stance.
Benchmark bond yields fell 3 basis points from the day’s high to 7.2314%.
In October, the central bank said it may consider bond sales via open market operations to keep liquidity conditions tight amid elevated inflation.
However, tighter than expected liquidity conditions in the banking system meant such sales were not needed.
The central bank will remain nimble, said Das, skipping any forward guidance on how it will manage liquidity.