By Jaspreet Kalra and Abinaya V
MUMBAI, Aug 5 (Reuters) – The Reserve Bank of India kept its policy repo rate unchanged at 5.25% on Wednesday, as it awaits data to judge if higher oil prices are stoking inflationary pressures across Asia’s third largest economy.
The decision to hold rates sets India apart from a growing band of regional peers including Indonesia, Philippines and others that have responded to the inflationary fallout from higher energy prices and war-driven currency volatility by tightening policy. Instead, the RBI announced a series of steps at the previous meeting to boost capital inflows and support the rupee.
The central bank’s six-member rate panel, which includes three external members, voted unanimously to keep rates on hold. The rate-setting panel also retained the policy stance at “neutral”.
An overwhelming majority of 68 out of 72 economists polled by Reuters had forecast that the RBI will stand pat on its benchmark interest rates.
Headline inflation has moved above target mainly because of higher fuel prices, while broader price pressures remain in check, RBI Governor Sanjay Malhotra said while announcing the policy.
Signalling no rush to act until there is greater clarity on inflation, Malhotra reaffirmed the RBI’s “resolute” commitment to its inflation target.
India’s benchmark 10-year bond yield was flat at 6.7765%, while the rupee weakened marginally to 95.03. The benchmark Nifty 50 index was flat, while BSE Sensex was 0.5% higher.
INFLATION IN CHECK; GROWTH RESILIENT
The central bank cut its forecast for average inflation in the current financial year to 5% from the 5.1% it projected in June. The forecast for core inflation, which excludes food and fuel, was cut more steeply to 4.3% from 4.7% earlier.
Retail inflation in India rose above the central bank’s medium term target of 4% for the time in 17 months in June but is projected to stay within its tolerance band of 2%-6% in the current fiscal year, giving policymakers breathing room on rates.
The central bank also raised its GDP growth estimate marginally to 6.7% for the year from 6.6% in June.
High frequency economic indicators have projected a mixed picture with the purchasing managers index slipping to a five-year low but demand for credit growing at a much stronger pace of near 18%.
Domestic demand remains resilient but a weak monsoon, trade and geopolitical uncertainties could emerge as risks to growth, Malhotra said.
(Reporting by Jaspreet Kalra and Abinaya V; Editing by Shri Navaratnam and Mrigank Dhaniwala)
