India’s central bank kept interest rates unchanged for the seventh consecutive time on Friday as the world’s fifth-largest economy experiences both lingering inflation risks and strong economic growth.
The Reserve Bank of India (RBI) announced that its Repo rate, the level at which the central bank lends to commercial banks, would remain at the same level, 6.50%.
The world’s major central banks have announced plans to cut rates this year.
In India, inflation is on a downward trajectory, but remains above the 4% target set by the RBI.
The government has also predicted a heat wave in several regions of the country, which threatens to drive up food prices.
Strong growth in economic activity has also limited the urgent need for a reduction in interest rates.
India’s GDP grew at a robust 8.4% in the fourth quarter of 2023, thanks to a booming manufacturing sector, beating analysts’ more modest forecasts.
Looking ahead, the robust growth outlook provides policy space to maintain focus on inflation and enable its decline towards the 4% target, said RBI Governor Shaktikanta Das.
But uncertainties over food prices continue to pose challenges, he added, so monetary policy must continue to be actively disinflationary.
Key interest rates were raised by 2.5 percentage points between May 2022 and February 2023, but have remained constant since then.
Retail price inflation in India stood at 5.09% in February, remaining virtually unchanged from the previous month, mainly due to higher food prices. So-called core inflation, which excludes food and fuel costs, remained below 4%.
For the 2023/2024 fiscal year, ending March 31, experts predict that India will have grown between 7.5% and 8%, the fastest of the world’s major economies.
In February, New Delhi announced a lower-than-expected budget deficit for the current fiscal year, avoiding populist spending in the final budget before national elections beginning April 19.