RBI holds key interest rate steady at 6.5% citing high food prices | Business

Mumbai: The Reserve Bank of India on Thursday decided to keep the policy rate unchanged for the ninth time in a row, saying food inflation remains stubborn. The rate increase cycle was paused in April last year after six consecutive rate hikes, aggregating to 250 basis points since May 2022.

Announcing the third bi-monthly monetary policy for the current financial year, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 6.5%. He said MPC will remain watchful of elevated food inflation. The RBI keeps the growth projection unchanged at 7.2% for the current financial year.

The monetary policy stance was retained at ‘withdrawal of accommodation’ to aid the MPC’s focus on bringing inflation towards the target, with four of the six MPC members voting in its favour. All 59 economists in the Reuters poll conducted in late July predicted the central bank would stand pat on rates.

The MPC last changed rates in February 2023, when the policy rate was raised to 6.5%. The annual retail inflation rate rose for the first time in five months in June, climbing above 5% on the back of a jump in food prices.

Still, investors are hopeful the RBI will soften its overall stance on inflation following the recent souring of global market sentiment and firmer expectations the Federal Reserve will cut interest rates in September.

Global equities and currencies tanked early this week as the Bank of Japan hiked rates to their highest levels since 2008 last week and fears of a US recession rose on the back of weak employment numbers. While Indian equities fared better, the rupee fell to all-time lows, prompting central bank intervention.

Strong GDP growth in the Indian economy has allowed the central bank to remain focused on inflation control. Despite some slowdown expected from the 8.2% expansion in fiscal 2024, India will remain among the fastest-growing economies globally if its 7.2% expected growth is achieved.
(With Reuters and PTI Inputs)