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Indian central bank keeps rates steady, but says inflation still too high

Published 08/06/2023, 06:16
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Investing.com -- The Reserve Bank of India kept interest rates steady on Thursday, citing recent resilience and stability in the Indian economy, although rates are likely to stay higher for longer to bring inflation down further.

The RBI kept its policy repo rate at 6.50 basis points (bps) as unanimously expected, keeping it steady for a second consecutive meeting.

But Governor Shaktikanta Das said that while inflationary conditions had improved in recent months, the bank would still watch for any upside risks to prices when adjusting monetary policy further this year.

A reading on consumer price index (CPI) inflation is due next week, and is expected to show inflation remained buoyant through May after hitting an 18-month low in April. But it is still set to remain well above the RBI’s 4% annual target.

The RBI is set to carry out further withdrawal of accommodative monetary policy, Das said, although he did not specify whether the move would entail more rate hikes.

The RBI governor warned that inflation will not fall below the bank’s target level in the near-term, and is likely to trend just above 5% in fiscal 2024.

“Given the uncertainties, we need to maintain ‘Arjuna’s eye’ on the evolving inflation scenario,” Das said in a livestream, referencing a famous archer from the Sanskrit epic Mahabharata.

Das said that domestic consumption and spending in India remained resilient, as the economy grew more than expected in the year to March 31, 2023.

The RBI Governor said that the Indian economy will continue running strong this year, despite increased global economic headwinds. Gross domestic product is expected to finish fiscal 2024 at 6.5%, slightly lower than the 7.2% growth seen through 2023.

Growth is also expected to accelerate sharply in the June quarter, with GDP forecast at 8%, Das said.

The Indian rupee rose slightly after the RBI decision, as did Indian stocks, ducking a decline in their Asian peers.

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