(Bloomberg) — India’s central bank left interest rates unchanged for a third straight meeting, amid stubbornly high inflation and signs of an economic revival.
The repurchase rate was maintained at 4% Friday, as forecast by all 32 economists surveyed by Bloomberg. The six-member Monetary Policy Committee retained its accommodative stance, Reserve Bank of India Governor Shaktikanta Das said.
Unlike central banks in Asia-Pacific, including Australia and Indonesia, which have resumed policy easing to cushion their economies from the onslaught of the pandemic, a surge in inflation has left the consumer price-targeting RBI with little room to ease rates further. After slashing borrowing costs by 115 basis points this year, Das has relied on unorthodox measures to support the economy that’s now entered a technical recession.
He has used measures such as the Federal Reserve-style Operation Twist — buying long-end debt while selling short-tenor bonds — to keep borrowing costs down.
Shorter bonds gained as the RBI desisted from taking steps to remove excess banking liquidity. The 5-year yield was down 8 basis points to 5.05%.
“The MPC decided today to maintain status quo on policy rate and continue with the accommodative stance as long as necessary at least during the current financial year and into the next year to revive growth on a durable basis,” Das said. This, he said, will help “mitigate the impact of Covid-19 on the economy while ensuring inflation remains within target going forward.”
The accommodative stance is an indication that the central bank sees the possibility of easing interest rates further when inflation eases.
Inflation at 7.6% in October was well above the upper end of the central bank’s 2%-6% target band and the RBI expect the outlook for prices could turn adverse. The central bank sees inflation in the fiscal third quarter at 6.8%, well above its targeted range.
“Inflation is likely to remain elevated,” Das said. “This constrains the monetary policy at the current juncture from using the space available to act in support of growth.”
The RBI revised its growth outlook, seeing a milder 7.5% contraction this fiscal year as opposed to its reading in October for a 9.5% decline. That follows a less-than-expected drop in gross domestic product in the three months to September, the second straight quarterly contraction.
(Updates with market reaction in fifth paragraph)
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