India keeps key rate unchanged on strong growth, inflation risks

A worker walks past the logo of Reserve Bank of India (RBI) inside its office in New Delhi, India July 8, 2019. REUTERS/Anushree Fadnavis/File photo

MUMBAI  -The Indian central bank’s key lending rate was held steady on Friday as growth in the world’s fastest growing major economy is resilient and the outlook for inflation remains uncertain.

The six-member monetary policy committee (MPC), consisting of three RBI and three external members, kept the repo rate unchanged at 6.5 percent in line with the unanimous consensus in a Reuters poll.

The vote on the repo rate decision was also unanimous.

The central bank raised its forecast for economic growth to 7 percent from 6.5 percent after stronger than expected growth in the July-September quarter.

READ: Indian economy seen to exceed growth estimates after strong Q2 beat

“Growth has been resilient and robust, surprising everyone,” Reserve Bank of India (RBI) Governor Shaktikanta Das said.

But the central bank’s 4 percent medium term inflation target is still to be met, said Das. “Monetary policy will remain actively disinflationary.”

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.

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 percent in October, but is expected to remain above the RBI’s 4 percent medium-term target for some time.

The central bank projected consumer inflation at 5.4 percent for 2023-24, unchanged from its previous projection.

READ: India central bank keeps key rate steady; liquidity measures in focus

The outlook for inflation remains clouded by uncertain food prices, said Das, while adding that core inflation, which excludes volatile food and fuel prices, has broadly moderated.

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 rose two basis points to 7.2565 percent after the RBI’s stronger growth forecast and cautious remarks on inflation risks.