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India’s central bank left the benchmark interest rate unchanged, while taking steps to boost liquidity in the banking system and stem a decline in the rupee.
The Reserve Bank of India’s monetary policy committee voted four-to-two to keep the repurchase rate at 6.5% on Friday, in line with the forecasts. The cash reserve ratio — the proportion of deposits that banks must set aside with the RBI— was lowered by 50 basis points to 4%, to address a potential cash squeeze.
“At this critical juncture, prudence and practicality demand that we remain careful and sensitive to the dynamically evolving situation,” Governor Shaktikanta Das said in a live streamed address in Mumbai. A status quo is “appropriate and essential,” though if growth slowdown lingers beyond a point, “it may need policy support,” he said.
Bonds fell after the RBI’s rate hold, while stocks reversed losses after the CRR cut. The rupee gained as the central bank announced measures to attract foreign inflows by allowing banks to offer higher interest rates to non-resident Indians.
India’s inflation has remained well above the RBI’s 4% target aim, with price gains accelerating to a 14-month high of 6.21% in October. Das had previously said a rate cut at this stage would be “very risky.”
Volatility in food costs, which make up about half of the inflation basket, will likely keep price gains elevated in the October to December period, the governor said.
The central bank raised its inflation forecast for the year through March 2025 to 4.8% from 4.5% earlier, while lowering its growth forecast to 6.6% from 7.2%.
Calls for easing are growing louder after a sharper-than-anticipated dip in the July-September period economic growth to 5.4%. External members of the MPC, Nagesh Kumar and Ram Singh, voted for a quarter-point reduction. Prominent ministers in Prime minister Narendra Modi’s government, including the finance minister, have called for lower borrowing costs in recent months.
“The policy decision continues to prioritize inflation control over growth rescue,” said Aurodeep Nandi, an economist at Nomura Holdings Inc. “However, there are indications that the policy paradigm could be shifting, which reflects in additional dissent within the MPC and Das’ commentary that the growth outlook warrants monitoring.”