The Financial Express

RBI keeps rate unchanged, seeks to balance growth and inflation risks

| Updated: February 29, 2020 12:01:18

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India's central bank held rates steady on Thursday and retained an accommodative policy stance as it sought to support faltering growth and avoid stoking already high inflation levels.

The Reserve Bank of India (RBI), the central bank of the country, has its work cut out as the economy is forecast to grow 5.0 per centin the year ending in March, its weakest pace in 11 years.

A rapidly-spreading coronavirus outbreak in China has also heightened concerns around the world of a damaging blow to global growth, reports Reuters.

Economists polled by Reuters had expected the RBI’s Monetary Policy Committee (MPC) to leave its key repo rate unchanged at 5.15 per cent and reverse repo rate at 4.9 per cent.

All six members of the MPC voted to keep rates steady and retain the accommodative monetary policy stance.

“The MPC recognises that there is policy space available for future action. The path of inflation is, however, elevated and on a rising trajectory,” the MPC said, while upwardly revising its near-term inflation projections.

Annual retail inflation surged to 7.35 per cent in December, mainly driven by food prices and touched its highest level in more than five years.

That comes against slowing growth in Asia’s third-largest economy. Annual growth in gross domestic product (GDP) most likely slipped to 4.3 per cent in the last three months of 2019, according to a forecast from Nomura. It had dropped to 4.5 per cent the previous quarter, its slowest in more than six years.

The RBI cut its policy rate by 135 basis points over five straight meetings last year, before surprising markets in December by holding rates steady due to growing concerns over inflation.

On Thursday, the central bank said it expects inflation in the ongoing fourth quarter of fiscal 2020 to hit 6.5 per cent.

In December it had forecast that inflation would be in the 5.1-4.7 per cent range during the second half of the current fiscal year.

It also forecast inflation be in the 5.4-5.0 per cent range in the first half of the upcoming fiscal year, as compared to its own prior projection of 4.0-3.8 per cent for that period.

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