India holds rates amid buoyant growth, to monitor inflation

India’s central bank on Friday raised its fiscal year growth forecast on the back of a robust economy and flagged continuing tight monetary policy while it keeps watch over inflation risks.

The Reserve Bank of India expects the economy to expand 7 per cent in the current fiscal year from 6.5 per cent after stronger than expected growth in the July-September quarter.

“The Indian economy presents a picture of resilience and momentum,” Reserve Bank of India (RBI) Governor Shaktikanta Das said in a prepared statement. “Growth remains resilient and robust, surprising everyone.”

At a press conference later in the day, RBI Deputy Governor Michael Patra called the upgraded GDP estimate of 7 per cent “conservative”.

The outlook for inflation, however, remains uncertain, the central bank officials said.

That prompted the central bank’s six-member monetary policy committee, consisting of three RBI and three external members, to keep the repo rate unchanged at 6.50 per cent, for the fifth consecutive meeting, and in line with the unanimous consensus in a Reuters poll.

The vote on the repo rate decision was also unanimous.

The RBI had raised the repo rate by a total 250 basis points (bps) since May 2022 in efforts to cool surging inflation, which dropped to a four-month low of 4.87 per cent in October, but is expected to remain above the RBI’s 4 per cent medium-term target for some time.

The near-term outlook is “masked by risks to food inflation,” said Das, which might lead to an uptick in November and December even though core inflation, which excludes volatile food and fuel prices, has broadly moderated.

The central bank projected consumer inflation at 5.4 per cent for 2023-24, unchanged from its previous projection.

The MPC maintained its policy stance of “withdrawal of accommodation” to ensure inflation progressively aligns with the committee’s target while remaining supportive of economic growth.

Any kind of policy loosening is “not on the table at this point”, Das said at the press conference. “Inflation management cannot be on autopilot.”

Economic Affairs Secretary Ajay Seth, attending an event in New Delhi, said supply-side measures to tame food inflation would continue to be taken.

Economists expect rates to stay on hold for some time.

“The economy is performing exceptionally well, which limits any immediate need for looser policy,” said Shilan Shah, deputy chief emerging markets economist at Capital Economics.

“We maintain our call for a prolonged pause on the repo rate at 6.5 per cent well into financial year 2024-25,” said Suvodeep Rakshit, senior economist at Kotak Institutional Equities. “The good part is that growth remains resilient and core inflation remains under check.”

The Indian rupee was slightly weaker at 83.3650 to the dollar while equity markets kept their gains following no change to the policy rate and stance.

Benchmark bond yields were stable at 7.2419 per cent.

In October, the central bank said it may consider bond sales via open market operations to keep liquidity conditions tight amid elevated inflation.

However, tighter than expected liquidity conditions in the banking system meant such sales were not needed.

The central bank will remain nimble, said Das, skipping any forward guidance on how it will manage liquidity.