The Indian Central Bank once again kept its key rate unchanged at 6.5% on Friday, despite a further rise in inflation and the government’s fears about the impact of high consumer prices on household budgets.
The benchmark repo rate has remained unchanged since February, after a succession of increases last year decided by the Reserve Bank of India (RBI) in order to slow the increase in prices. Inflationary pressures, with a peak of 7.79% reached in April 2022, had led the RBI to raise its interest rates from 4.0% to 6.50% between May 2022 and last February. They have diminished in recent months.
Consumer price inflation, however, rose to 7.4% in July, before falling to 6.8% the following month, a level well above the RBI’s reference rate. The bank has identified high inflation as a risk to macroeconomic stability and sustainable growth and remains resolutely focused on aligning inflation with the 4% target, RBI Governor Shaktikanta Das said.
Prices of basic foodstuffs, including wheat, rice and tomatoes, have surged in recent months, partly due to extreme weather events, such as floods, record temperatures and pest attacks in areas of production. Finance Minister Nirmala Sitharaman told Parliament in July that the government was taking steps to contain high prices that hit ordinary citizens. The government imposed restrictions on exports of certain varieties of rice to encourage lower prices.
Food prices have since fallen, but the overall inflation outlook is clouded by uncertainties related to lower domestic plantings of key crops and volatility in global food and energy prices, Das said. . India’s gross domestic product (GDP) grew 7.8% year-on-year in the second quarter.
The South Asian country, which has become the most populous in the world, ahead of China, with 1.4 billion inhabitants, has one of the fastest growth rates among the world’s major economies, despite headwinds, notably tightening global financial conditions, the war in Ukraine and geopolitical tensions.
The Indian economy is expected to grow by 6.3% in 2023/2024, thanks to investment and robust domestic demand, according to the World Bank forecast earlier this month.