RBI keeps rates steady, revises down GDP growth forecast 2025 fiscal year

India’s central bank kept its benchmark rate at 6.50% on Friday as it struggles to contain inflation without hurting growth in Asia’s third-largest economy.

The decision was in line with the expectations of economists in a Reuters poll, as India’s consumer price inflation has been high. It rose to a 14-month high of 6.21% in October, significantly higher than the central bank’s target of 4% and also the tolerance ceiling of 6%.

Reserve Bank of India Governor Shaktikanta Das said the central bank had cut its forecast for India’s GDP growth to 6.6% in 2025 – from the RBI’s forecast of 7.2% growth in October – and added that the slowdown in the domestic economy had made it “below”. September quarter

The central bank also announced a 50 basis point cut in banks’ cash reserve ratio to 4.0% to bolster liquidity in the economy.

The RBI has kept interest rates on hold since February last year, however, a sharper-than-expected slowdown in India’s economic growth has complicated the central bank’s task.

From July to September, the Indian economy it grew by 5.4% compared to a year agoIt completely missed the 6.5% expectation of economists polled by Reuters, and marked the slowest pace in nearly two years.

The slowdown has raised concerns that the RBI’s restrictive policies could put the economy at risk of missing its forecast of 7.2% annual growth through March 2025.

both Finance Minister Nirmala Sitharaman and Commerce Minister Piyush Goyal They have called for lower borrowing costs to bolster demand for loans and support a slowing economy.

“At a time when we want to increase industries and build capacity, bank interest rates will have to be much cheaper,” the finance minister said. At an event in Mumbai last month.

RBI chief Shaktikanta Das, however, has ruled out an immediate rate cut even as the central bank changed its policy stance. from “neutral”. More restrictive “accommodation removal” at the October meeting.

Das, whose second term at the central bank ends this month, said in October that an immediate interest rate cut was possible. “very early” and “very, very dangerous”and that he was in no rush to join the world’s central banks in easing.

The Indian rupee fell to record lows against the US dollar this week, LSEG data showed, and monetary easing measures would put further pressure on the currency and likely lead to capital outflows.

After Friday’s announcement, the rupee was little changed at 84,666 against the greenback. The Nifty 50 index erased earlier losses to trade almost flat.

Contains reference indexes GDP has risen slightly since its release last Friday, and has grown by 13.7% since the beginning of the year. For comparison, MSCI Asia to Japan Index — which allocates nearly 23% of its funds to India — is down about 12% this year.

Indian bonds have rallied in recent days with the benchmark 10-year yield falling to 6.677% on Thursday, its lowest level since February 2022, according to LSEG data.

The 10-year yield rose 3.1 basis points to 6.711% after the RBI’s decision.

— CNBC’s Amala Balakrishner contributed to this report.