RBI keeps rate unchanged amid inflation fears
Asia’s third-largest economy is struggling to recover from lockdown impact
India’s central bank kept interest rates unchanged yesterday, opting for inflation to cool before taking further action to boost a fragile economy.
The Monetary Policy Committee (MPC) voted to keep the benchmark repurchase rate at a record low of 4 per cent, Governor Shaktikanta Das said in an online broadcast.
Economists were split on the decision, with half of the 44 surveyed by Bloomberg predicting a 25 basis-point reduction, one predicting a 50-point cut and the rest seeing no change. The six-member committee, which has already lowered rates by 115 basis points this year, retained its “accommodative” stance, implying there’s still room to cut rates again.
“The MPC voted unanimously to leave the policy repo rate unchanged,” Das said. It will “continue with the accommodative stance of monetary policy as long as necessary to revive growth.”
Asia’s third-largest economy is struggling to recover from one of the world’s biggest lockdowns, which brought most industries to a virtual halt but failed to slow the spread of the coronavirus outbreak.
Gross domestic product is heading for its first full-year contraction in 40 years, and will probably shrink 18.9 per cent in the April-June quarter from a year ago, according to economists surveyed by Bloomberg. Recent high-frequency indicators from car sales to Google mobility reports show signs of a recovery remain muted.
At the same time, inflation has spiked above the central bank’s 2 per cent-6 per cent target band for most of this year, giving policymakers reason to pause. Rising food, fuel and gold prices have driven inflation higher, as well as supply-side constraints due to the lockdown.