India central bank holds rate as focus stays on inflation

THE Reserve Bank of India (RBI) left its key policy interest rate unchanged Friday (Dec 8), predicting faster growth in Asia’s third-largest economy and inflation risks from food prices. 

The six-member Monetary Policy Committee voted unanimously to keep the benchmark repurchase rate at 6.5 per cent for the fifth straight time. All but one of the 44 economists surveyed by Bloomberg had predicted the move.

The panel also decided by a vote of five to six to retain its policy stance at “withdrawal of accommodation,” indicating rates may remain higher for longer.

“The inflation outlook will be influenced by uncertain food prices,” Governor Shaktikanta Das said in a live-streamed address from Mumbai, saying there are risks especially in November and December. The target of 4 per cent is yet to be reached and “we have to stay the course,” Das said.

Stocks advanced 0.4 per cent while the rupee and government bonds traded flat.

The RBI raised its growth projection for the fiscal year ending March to 7 per cent from 6.5 per cent after the economy expanded at a much faster pace than expected last quarter. Several economists have also recently raised their full-year projections closer to 7 per cent.

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“So far, the RBI seems very comfortable with the growth outlook, which is going to be key factor deciding monetary policy for India going ahead, unlike inflation which is key in rest of the world,” said Rahul Bajoria, an economist at Barclays.

The RBI has raised its key interest rate by 2.5 percentage points since last year to help rein in inflation and bolster the rupee. Analysts are divided on when the central bank will cut interest rates, though most expect a shift only once the US Federal Reserve begins easing. BLOOMBERG