India’s central bank left interest rates unchanged, as most economists expected, with policymakers seeking to cushion the economy while keeping the rupee in focus.
The six-member Monetary Policy Committee unanimously agreed to keep the benchmark repurchase rate unchanged at 5.25%, in line with the forecasts of 29 of 35 economists surveyed by Bloomberg. The policy stance was also retained at neutral.
The decision underscores the Reserve Bank of India’s determination to support economic growth despite rising inflation risks triggered by an energy price shock as the Middle East conflict continues to drag on. With inflation already close to the RBI’s 4% target, economists expect the RBI will likely hike rates in coming months.
"The Indian economy entered this episode of global turbulence with much better fundamentals than in previous similar episodes,” Governor Sanjay Malhotra said in a televised speech. "We remain confident to withstand these shocks with minimum pain.”
Friday’s decision shows the RBI may be unwilling to hike rates to bolster the rupee, which sank to a record low near 97 per dollar last month. The government is instead considering other steps, such as reducing taxes on foreign investment in government bonds, to help boost inflows and the currency.
The rupee is down more than 6% against the dollar so far this year, making it one of the worst performing currencies in Asia. The central bank has ramped up its currency intervention and taken a number of other measures to halt the rupee’s depreciation, helping it pare some of its losses in recent weeks.
An emergency rate hike to bolster the currency has proved ineffectual in Indonesia, where the rupiah fell past 18,000 per dollar this week. - Bloomberg
