Shaktikanta Das, Governor, Reserve Bank of India
Resilient and steady economic growth in India is allowing the central bank to focus on bringing inflation down towards its 4% medium term target, said RBI Governor Shaktikanta Das, emphasising that price stability is important for sustainable growth
MUMBAI: The Reserve Bank of India (RBI) in its bi-monthly meet kept its key interest rate unchanged on Thursday, as widely expected, as it continued its efforts to sustainably lower inflation towards its 4% target.
The Monetary Policy Committee (MPC), which consists of three RBI and three external members, kept the repo rate unchanged at 6.50% for a ninth straight policy meeting. The monetary policy stance was retained at ‘withdrawal of accommodation’ to aid the MPC’s focus on bringing inflation towards the target, with four of the six members voting in its favour.
It is important for monetary policy to stay the course, RBI Governor Shaktikanta Das said, adding that India’s food inflation remains “stubbornly” high.
Das said that the decision was taken with a majority of 4:2 by the MPC. It also decided to retain the withdrawal of accommodation stance.
All 59 economists in the Reuters poll conducted in late July predicted the central bank would stand pat on rates.
Resilient and steady economic growth in India is allowing the central bank to focus on bringing inflation down towards its 4% medium term target, said Das, emphasising that price stability is important for sustainable growth.
“We are seeing good amount of convergence between market expectations and RBI policies, they are well aligned,” said Das.
The MPC continues to expect Indian economy to grow at 7.2 % in FY25, even as it moderated outlook for the first quarter, Governor Das announced.
While forecast for FY25, Q2FY25, Q3FY25 and Q4FY25 was left unchanged, Das said forecast for Q1FY25 has been reduced to 7.1%.
“The outcome of the MPC meeting was in line with our and the market’s expectations. Despite the recent events in the global markets and dovish guidance from global central bankers, the MPC decided to keep the status quo and kept policy rates unchanged. we expect the RBI to take a call on rate cuts only if it feels more confident in reaching a 4%–4.5% inflation trajectory. Market interest rates have dropped over the past couple months due to strong demand and a fall in global rates. We expect the 10-year benchmark G-Sec to gradually soften towards the 6.5%–6.75% range over the next 6–9 months,” commented Sachin Bajaj, Chief Investment Officer at Max Life Insurance Sachin Bajaj.
The MPC last changed rates in February 2023, when the policy rate was raised to 6.50%. The annual retail inflation rate rose for the first time in five months in June, climbing above 5% on the back of a jump in food prices.
Still, investors were hopeful the RBI will soften its overall stance on inflation following the recent souring of global market sentiment and firmer expectations the Federal Reserve will cut interest rates in September.
Global equities and currencies tanked early this week as the Bank of Japan hiked rates to their highest levels since 2008 last week and fears of a U.S. recession rose on the back of weak employment numbers.
While Indian equities fared better, the rupee fell to all-time lows, prompting central bank intervention.
On Thursday, after the RBI maintained its hawkish policy stance, Indian shares extended their losses. The NSE Nifty 50 index fell 0.64% and the S&P BSE Sensex shed 0.62%.
The 10-year benchmark bond yield rose slightly to 6.8763% from 6.8678% before the policy decision, while the Indian rupee was nearly flat at 83.94 against the dollar.
There are significant challenges to medium term global growth, Das said in his policy statement, while acknowledging global market volatility and the move towards rate cuts by several global central banks.
Still, the RBI kept its growth forecast for fiscal 2025 unchanged at 7.2%, slower that the 8.2% expansion in fiscal 2024.It also retained its inflation forecast at 4.5% in the current year.
Reuters