India’s Central Bank Holds Steady on Interest Rates Amid Soaring Inflation
India’s central bank has opted to maintain the benchmark interest rate at 6.50%, as it grapples with the dual challenge of containing rising inflation and supporting growth in Asia’s third-largest economy. The decision aligns with economists’ expectations, given the country’s consumer prices inflation surge to a 14-month high of 6.21% in October.
GDP Growth Outlook Revised Downward
Reserve Bank of India Governor Shaktikanta Das has revised India’s GDP growth outlook for fiscal year 2025 downward to 6.6%, citing a slowdown in the domestic economy. This marks a significant decrease from the initial forecast of 7.2% growth in October. Das, however, remains optimistic, stating that the slowdown has “bottomed out” in the September quarter.
Liquidity Boost
To bolster liquidity in the economy, the central bank has announced a 50-basis-point cut to banks’ cash reserve ratio, bringing it down to 4.0%. This move is expected to inject life into the economy, which has been experiencing a sharper-than-anticipated slowdown.
Economic Growth Concerns
India’s economy grew at a pace of 5.4% from a year ago in the July to September period, drastically missing economists’ expectations of 6.5%. This marks the slowest pace in nearly two years, prompting concerns that the RBI’s restrictive policies may be putting the economy at risk of missing its forecasted growth.
Calls for Lower Borrowing Costs
Finance Minister Nirmala Sitharaman and Trade Minister Piyush Goyal have reportedly called for lower borrowing costs to bolster lending demand and support a slowing economy. Sitharaman emphasized the need for affordable bank interest rates to enable industries to ramp up and build capacities.
No Immediate Rate Cut
RBI Chief Shaktikanta Das has ruled out an immediate rate cut, citing concerns that it could be “very premature” and “very, very risky.” Das is hesitant to join the global central banks in easing, opting instead for a cautious approach.
Market Reaction
The Indian rupee was little changed at 84.666 against the U.S. dollar following the announcement, while the Nifty 50 index erased earlier losses to trade nearly flat. Indian bonds have rallied over the past few days, with the 10-year benchmark yield dropping to 6.677% on Thursday, its lowest level since February 2022.
Leave a Reply