India central bank holds rates despite growth dip
MUMBAI: India's central bank left interest rates unchanged on Friday, judging that inflation risks outweighed concerns over a growth slowdown in the world's fifth-largest economy. The Reserve Bank of India (RBI) stated that the benchmark repo rate, the level at which it lends to commercial banks, would remain at 6.50%, where it has been since February 2023.
Major central banks worldwide have initiated a global easing cycle in response to lower inflation, including the US Federal Reserve, which cut rates in September for the first time in four years. Despite this, retail inflation in India has stubbornly remained above the monetary policymakers' 4% target, reaching a 14-month high of 6.21% in October.
RBI governor Shaktikanta Das noted the 'recent slowdown in the growth momentum' but described India's outlook as 'resilient'. "The increasing incidence of adverse weather events, heightened geopolitical uncertainties and financial market volatility pose upside risks to inflation," he said.
The RBI also reduced its minimum cash reserve ratio for lenders, from 4.5% to 4%. This liquidity-boosting measure provides banks with more money to lend.
The decision to hold interest rates steady comes despite signs of a slowdown in economic growth. India's GDP growth was 5.4% in the September quarter, hampered by a sluggish manufacturing sector and muted urban consumption. Although this still positions India among the world's fastest-growing major economies, it was the slowest pace of growth in seven quarters, below analyst expectations of 6.5%.
The central bank now projects growth to taper to 6.6% for the current fiscal year ending on 31 March, down from an earlier estimate of 7.2%. The RBI raised rates by 2.5 percentage points between May 2022 and February 2023.
By RSS/AFP
