India’s central bank has held its benchmark interest rate unchanged, in an unexpected move that came amid banking turbulence in the US and Europe, renewed oil price volatility and as the country’s robust economic growth showed signs of abating.
Reserve Bank of India governor Shaktikanta Das said the central bank’s six-person monetary policy committee had voted unanimously on Thursday to maintain the repo rate at 6.5 per cent, defying expectations of a 0.25 per cent rise and breaking a tightening cycle that began last May.
The RBI is the second major central bank to hold rates this week after Australia opted to keep rates steady on Tuesday following 10 consecutive rate rises. Central bankers worldwide are trying to balance concerns about worsening economic conditions with persistent inflation, which has hurt consumer spending.
India’s Sensex equities benchmark ticked up 0.25 per cent.
Although the global economic picture has brightened this year, Das said the “outlook is now tempered by additional downside risks from financial stability concerns”. He emphasised that Indian banks “remain healthy” amid a backdrop of the takeover of Credit Suisse by Swiss rival UBS and recent banking collapses in the US.
Economists had expected the RBI to raise rates one more time, as India’s inflation had softened in February to 6.4 per cent but remained above the bank’s upper tolerance level of 6 per cent.
Das stressed that the pause in rate rises was “for this meeting only” and that the decision was a “pause, not a pivot” as he stressed that “the war against inflation has to continue”. He said the central bank was waiting to observe the economic impact of the 250 basis point increase in the repo rate over the past six meetings.
The RBI also set its gross domestic product growth forecast for the financial year beginning this month at 6.5 per cent, up slightly from its previous 6.4 per cent outlook but lower than its forecast of 7 per cent growth for the current financial year.
“Overall we are optimistic about the Indian economy,” said Das, who highlighted risks from external factors such as the shock Opec oil production cut this month.
India’s gross domestic product growth rate slowed to 4.4 per cent in the fourth quarter of 2022. Analysts have highlighted weakening consumer spending, among other concerns. The RBI on Thursday said that “private consumption showed some signs of slowdown”.
Amar Ambani, head of institutional equities at YES Securities, said the RBI’s growth forecasts were “over-optimistic”, citing a consensus estimate of 6 per cent. He added that he expected 6.5 per cent would now be the terminal rate.
Source: Economy - ft.com
