India keeps interest rates steady
mumbai — The Reserve Bank of India kept its policy rate steady on Wednesday, as widely expected, after inflation accelerated to a seven-month high and stronger economic growth reduced the need for monetary stimulus.
All but two of 54 analysts in a Reuters poll had predicted the repo rate would be left unchanged for a second straight meeting at six per cent, its lowest since November 2010. The RBI also kept the reverse repo rate unchanged at 5.75 per cent.
The decision to stand pat was widely expected after the annual rate of consumer inflation increased in October to 3.58 per cent, driven by higher food and crude oil prices. That’s still low by Indian standards, but not far from the central bank’s four per cent target.
The RBI left its policy stance “neutral” while slightly softening its language on inflation by saying risks were “evenly balanced”.
Many analysts believe the RBI will keep rates on hold in coming months, including at its next policy meeting in February, as it watches inflation trends.
“The global policy rate cycle and [rising] commodity prices, along with the consolidated fiscal position, will keep the RBI cautious,” said Suvodeep Rakshit, a senior economist with Kotak Institutional Equities in Mumbai.
Government officials have been calling on the RBI to cut rates given the economy, though recovering from July’s bumpy launch of a national sales tax, is not yet growing fast enough to create the jobs needed for India’s young workforce.
“We have a neutral stance, which means that depending on the data flow in coming months and quarters, we’ll determine what we do regarding the policy,” RBI Governor Urjit Patel said.