INDIA'S central bank has decided to keep interest rates unchanged, prioritising inflation risks over concerns about a slowdown in the country's economic growth.
The Reserve Bank of India (RBI) announced on Friday that the repo rate, at which it lends to commercial banks, will remain at 6.50 per cent. This rate has been steady since February 2023.
Central banks globally, including the US Federal Reserve, have started easing monetary policies in response to falling inflation. However, India’s retail inflation remains above the RBI's target of four per cent, peaking at a 14-month high of 6.21 per cent in October.
RBI Governor Shaktikanta Das said the monetary policy committee recognised the “recent slowdown in the growth momentum” but viewed the overall economic outlook as “resilient.” He also highlighted risks to inflation from “adverse weather events, heightened geopolitical uncertainties, and financial market volatility.”
In a move to boost liquidity, the RBI reduced the cash reserve ratio — the portion of deposits banks must hold with the central bank — from 4.5 per cent to four per cent. This measure is intended to free up more funds for lending.
The decision to hold rates comes amid signs of slowing economic growth. India's GDP grew by 5.4 per cent in the September quarter, marking the slowest pace in seven quarters. The slowdown was attributed to weak manufacturing output and muted urban consumption.
While India remains one of the fastest-growing major economies, the RBI has revised its growth projection for the fiscal year ending March 2024 to 6.6 per cent, down from the earlier estimate of 7.2 per cent.
The RBI had previously raised interest rates by 2.5 percentage points between May 2022 and February 2023 to address inflation concerns.
(With inputs from AFP)
Bobby Bawa