India’s central bank left its benchmark interest rate unchanged on Wednesday, as policymakers waited for clearer signs of whether rising global oil prices would fuel inflation in Asia’s third-largest economy.
The Reserve Bank of India (RBI) kept its policy repo rate at 5.25%, maintaining a cautious stance despite several regional central banks raising interest rates in response to higher energy costs and currency volatility driven by geopolitical tensions.
The six-member Monetary Policy Committee unanimously voted to keep rates unchanged and retained its “neutral” policy stance, in line with market expectations. Of the 72 economists surveyed, 68 had forecast that the RBI would leave rates unchanged.
RBI Governor Sanjay Malhotra said headline inflation had moved above the bank’s target largely because of higher fuel prices, while underlying price pressures remained contained. He reiterated the central bank’s commitment to its inflation target, saying there was no immediate need to tighten monetary policy until there was greater clarity on the inflation outlook.
The RBI lowered its average inflation forecast for the current financial year to 5.0% from 5.1% projected in June. It also reduced its core inflation forecast, which excludes food and fuel prices, to 4.3% from 4.7%.
Retail inflation rose above the RBI’s medium-term target of 4% in June for the first time in 17 months. However, the central bank expects inflation to remain within its tolerance band of 2% to 6% during the fiscal year.
The RBI also slightly raised its economic growth forecast, increasing its GDP projection for the year to 6.7% from 6.6%, citing resilient domestic demand.
Financial markets were largely unmoved by the decision. India’s benchmark 10-year government bond yield was little changed at 6.7765%, while the rupee weakened slightly to 95.03 against the US dollar. The Nifty 50 index was broadly flat, while the BSE Sensex rose 0.5%.
Malhotra warned that a weak monsoon, global trade uncertainty and geopolitical tensions continued to pose risks to growth, even as domestic demand remained resilient.
Ojo Triumph
