RBI holds interest rates amid rising inflation
Photo Credit: VCCircle

India's central bank unexpectedly kept interest rates on hold on Thursday, amid a recent rise in retail consumer prices, and said it would ensure inflation remains within its target range.

The repo rate currently stands at 4.0% and the reverse repo rate at 3.35%.

Two-thirds of analysts in a Reuters poll had predicted a 25 basis point cut in the repo rate, while the rest saw no change.

The Reserve Bank of India has already reduced the repo rate by a total of 115 basis points since February, on top of the 135 basis points in an easing cycle last year, from 6.50%.

"Given the uncertainty surrounding the inflation outlook and extremely weak state of the economy in the midst of an unprecedented shock from the ongoing pandemic, the MPC decided to keep the policy rate on hold," Governor Shaktikanta Das said.

Das said the central bank would remain "watchful for a durable reduction in inflation to use the available space to support the revival of the economy."

The committee, however, unanimously decided to continue to keep its accommodative policy stance "as long as necessary to revive growth".

The country was placed under one of the strictest lockdowns in the world in late March for more than two months to halt the spread of the coronavirus. The government gradually eased restrictions in June although infections continue to rise.

A Reuters poll estimates the economy could contract 20% in the June quarter versus the April forecast of a 5.2% fall and remain in negative terrain until the December quarter.

For the full year 2020-21, the economy is likely to shrink 5.1%, which would be its weakest performance since 1979, a sharp contrast to the 1.5% expansion forecast in April.

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