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India's central bank keeps key rates steady as expected

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The Reserve Bank of India (RBI) kept key interest rates steady as widely expected on Friday amid persistently high inflation, and after a better-than-expected reading on economic growth.

[MUMBAI] The Reserve Bank of India (RBI) kept key interest rates steady as widely expected on Friday amid persistently high inflation, and after a better-than-expected reading on economic growth.

The monetary policy committee also decided to retain an accommodative policy stance at least for the current financial year and into the next year to revive growth on a durable basis, Governor Shaktikanta Das said in an online briefing.

Mr Das said the economy was rebounding faster than expected from a coronavirus-induced slump earlier in the year but warned signs of recovery were far from being broad based.

The key lending rate of the RBI or the repo rate was left unchanged at 4 per cent while the reverse repo rate or the key borrowing rate stayed at 3.35 per cent.

Indian stocks, which were up ahead of the policy announcement, were little changed after the decision, while rupee and the benchmark 10-year bond yield were largely flat at 73.78 against the dollar and 5.93 per cent respectively.

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The central bank has slashed the repo rate by 115 basis points (bps) since late March to cushion the shock from the coronavirus crisis and sweeping lockdowns to check its spread.

However, inflation has remained consistently above the upper end of the RBI's mandated 2 per cent -6 per cent target range every month barring March this year, with core inflation also remaining sticky.

On Friday, Mr Das said the MPC expects this trend to persist and that the outlook for inflation has turned "adverse."

The MPC sees inflation in the current quarter at 6.8 per cent before cooling slightly to 5.8 per cent in the Jan-March quarter.

Gross domestic product in the July-September quarter contracted 7.5 per cent on-year, after a decline of 23.9 per cent in the previous three months.

The latest decline was more moderate than expected, prompting some analysts to push back expectations for more interest rate reductions.

Mr Das also noted that consumer confidence for the next year has turned positive.

REUTERS

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