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RBI holds rates steady, sees economic recovery taking root

RBI holds rates steady, sees economic recovery taking root

MUMBAI (Reuters) – The Reserve Bank of India (RBI) left key interest rates unchanged on Friday as widely expected, while keeping policy accommodative to help pull the coronavirus-ravaged economy out of its worst slump in four decades.

FILE PHOTO: A worker walks past the logo of Reserve Bank of India (RBI) inside its office in New Delhi, India July 8, 2019. REUTERS/Anushree Fadnavis

India’s economy has been the worst hit by the pandemic among major countries and new infections continue to climb, but RBI Governor Shaktikanta Das said there were some encouraging signs of a business turnaround and activity could return to growth in the January-March quarter.

As expected, the monetary policy committee (MPC) kept the repo rate, its key lending rate, at 4.0%, while the reverse repo rate or the key borrowing rate stayed at 3.35%.

The RBI has slashed the repo rate by 115 basis points (bps) since late March to cushion the shock from the coronavirus crisis and sweeping lockdowns to check its spread.

The RBI sees India’s real GDP contracting by 9.5% in the current fiscal year, Das said in a webcast after the MPC meeting.

“The MPC is of the view that revival of the economy from an unprecedented COVID-19 pandemic assumes the highest priority in the conduct of monetary policy,” he said.

“The MPC decides to maintain status quo on the policy rate in this meeting and await the easing of inflationary pressures to use the space available for supporting growth further.”

August inflation, at 6.69%, held above the top end of the RBI’s medium-term target range of 2-6% for the fifth consecutive month amid supply disruptions.

“The main reason for inaction today was the stickiness of inflation,” said Shilan Shah, senior India economist at Capital Economics in Singapore.

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