Economic news

India Holds Rates amid Buoyant Growth, to Monitor Inflation

  • Repo rate kept unchanged at 6.5%, as expected
  • RBI to maintain tight stance as inflation seen a risk
  • Rates expected to stay on hold well into 2024

MUMBAI, Dec 8 (Reuters) - India's central bank on Friday raised its fiscal year growth forecast on the back of a robust economy and flagged continuing tight monetary policy while it keeps watch over inflation risks.

The Reserve Bank of India expects the economy to expand 7% in the current fiscal year from 6.5% after stronger than expected growth in the July-September quarter.

"The Indian economy presents a picture of resilience and momentum," Reserve Bank of India (RBI) Governor Shaktikanta Das said. "Growth remains resilient and robust, surprising everyone," he said.

The outlook for inflation, however, remains uncertain, Das said.

That prompted the central bank's six-member monetary policy committee, consisting of three RBI and three external members, to keep the repo rate unchanged at 6.50%, for the fifth consecutive meeting, and in line with the unanimous consensus in a Reuters poll.

The vote on the repo rate decision was also unanimous.

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

The near-term outlook is "masked by risks to food inflation," said Das, which might lead to an uptick in November and December even though core inflation, which excludes volatile food and fuel prices, has broadly moderated.

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

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.

Monetary policy will remain actively disinflationary, Das said.

Economists expect rates to stay on hold for some time.

"The economy is performing exceptionally well, which limits any immediate need for looser policy," said Shilan Shah, deputy chief emerging markets economist at Capital Economics.

"We maintain our call for a prolonged pause on repo rate at 6.5% well into financial year 2024-25," said Suvodeep Rakshit, senior economist at Kotak Institutional Equities. "The good part is that growth remains resilient and core inflation remains under check."

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 fell 3 basis points from the day's high to 7.2314%.

In October, the central bank said it may consider bond sales via open market operations to keep liquidity conditions tight amid elevated inflation.

However, tighter than expected liquidity conditions in the banking system meant such sales were not needed.

The central bank will remain nimble, said Das, skipping any forward guidance on how it will manage liquidity.

Reporting by Swati Bhat and Sudipto Ganguly; Writing by Ira Dugal; Editing by Sanjeev Miglani and Jacqueline Wong

Source: Reuters

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