The Reserve Bank of India left its key interest rate unchanged Friday, maintaining its focus on inflation as oil prices surge and the US Federal Reserve’s tightening puts pressure on the rupee.
The six-member Monetary Policy Committee voted unanimously to keep the benchmark repurchase rate at 6.5% for the fourth straight time, Governor Shaktikanta Das said in a live-streamed address from Mumbai. All 38 economists in a Bloomberg survey predicted the move.
Five of the panel members voted to retain the relatively hawkish policy stance of “withdrawal of accommodation.”
Das said there’s a need to remain vigilant since high inflation is still a “major risk.” Monetary policy remains focused on bringing inflation down to the 4% midpoint of the target band, he said.
The RBI raised its key interest rate by 2.5 percentage points since last year to help keep inflation within the target range of 2%-6% and bolster the rupee. While inflation moderated to 6.83% in August and food prices are likely to fall in coming months, rising oil costs and sticky prices of cereals remain a concern.
The Fed’s rate hikes and a strong dollar have undermined the rupee and local bonds. However, that pressure may ease in coming months once India is included in JPMorgan & Co.’s emerging market bond index early next year, prompting more foreign inflows.
--With assistance from Ruchi Bhatia.
