Reserve Bank of India keeps key rates steady as expected

The key lending rate of the RBI or the repo rate was left unchanged at 4% while the reverse repo rate or the key borrowing rate stayed at 3.35%

  
A Reserve Bank of India (RBI) logo is seen at the gate of its office in New Delhi, India, November 9, 2018. Image used for illustrative purpose.

A Reserve Bank of India (RBI) logo is seen at the gate of its office in New Delhi, India, November 9, 2018. Image used for illustrative purpose.

REUTERS/Altaf Hussain

MUMBAI - The Reserve Bank of India (RBI) kept key interest rates steady as widely expected on Friday amid persistently high inflation, and after a better-than-expected reading on economic growth.

The monetary policy committee also decided to retain an accommodative policy stance at least for the current financial year and into the next year to revive growth on a durable basis, Governor Shaktikanta Das said in an online briefing.

Das said the economy was rebounding faster than expected from a coronavirus-induced slump earlier in the year but warned signs of recovery were far from being broad based.

The key lending rate of the RBI or the repo rate was left unchanged at 4% while the reverse repo rate or the key borrowing rate stayed at 3.35%.

Indian stocks, which were up ahead of the policy announcement, were little changed after the decision, while rupee and the benchmark 10-year bond yield were largely flat at 73.78 against the dollar and 5.93% respectively.

The central bank 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.

However, inflation has remained consistently above the upper end of the RBI’s mandated 2%-6% target range every month barring March this year, with core inflation also remaining sticky.

On Friday, Das said the MPC expects this trend to persist and that the outlook for inflation has turned “adverse.”

The MPC sees inflation in the current quarter at 6.8% before cooling slightly to 5.8% in the Jan-March quarter.

Gross domestic product in the July-September quarter contracted 7.5% on-year, after a decline of 23.9% in the previous three months.

The latest decline was more moderate than expected, prompting some analysts to push back expectations for more interest rate reductions.

Das also noted that consumer confidence for the next year has turned positive.

Reporting by Swati Bhat and Euan Rocha; Editing by Kim Coghill

© Reuters News 2020

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