India central bank holds rates as inflation risks linger

MUMBAI — India’s central bank kept interest rates unchanged for the eighth time in a row on Friday, as inflation risks continue to linger in the world’s fifth-largest economy.

The Reserve Bank of India (RBI) said its benchmark repo rate, the level at which it lends to commercial banks, would remain steady at 6.50 percent.

Two major central banks have started bringing down interest rates, including the European Central Bank which on Thursday cut rates for the first time since 2019.

Inflation in India has cooled from its 2022 peak of 7.8 percent but still remains above the RBI’s four percent target.

RBI governor Shaktikanta Das said the bank “remains vigilant to any upside risks” of inflation, particularly from food prices.

The decision comes days after Prime Minister Narendra Modi’s Bharatiya Janata Party failed to secure an outright majority in the national elections, forcing it to depend on coalition partners to govern.

Experts believe that may force Modi’s next administration to resort to populist spending to shore up its support base and mollify allies, which could stoke inflation.

India’s economy grew at a robust 8.2 percent in the year to March, with a surging manufacturing sector helping beat government and analyst forecasts.

READ: India’s ‘Goldilocks’ economy to prompt RBI to keep rates on hold

Interest rates were hiked by 2.5 percentage points between May 2022 and February 2023, but have been unchanged since.

India’s retail inflation came in at 4.83 percent in April, almost level from the previous month and led mainly by an increase in food prices.

The country’s “core” inflation, which excludes food and fuel costs, remained below 4 percent.

The International Monetary Fund expects India’s gross domestic product growth to taper slightly to 6.8 percent in 2024-25, which will still make it the fastest-growing among large economies, according to forecasts from April.