© Bloomberg. Reserve Bank of India (RBI) building in Mumbai, India Photographer: Kanishka Sonthalia/Bloomberg
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India’s central bank kept interest rates unchanged at a record low, setting aside concerns over high inflation to support an economy bracing for impact from an impending wave of the pandemic.
The Reserve Bank of India’s six-member Monetary Policy Committee retained its main repurchase rate at 4% on Friday, as predicted by all 29 economists in a Bloomberg survey. Policy makers voted 5-1 in favor of keeping the stance accommodative, a departure from the past when they were unanimous on the need to keep rates lower for longer to support growth.
That follows the pace of inflation surging past the RBI’s upper tolerance limit of 6% in the past two months, a trend that was mainly attributed to supply side disruptions caused by the coronavirus pandemic. However, recent high-frequency indicators from purchasing managers’ surveys to jobless data showed the economy’s recovery was muted, necessitating more support.
The recent inflationary pressures are evoking a concern, Governor Shaktikanta Das said in an online broadcast, while calling the trend transitory. Continued support from all sides — fiscal and monetary — is required at this juncture to nurture the recovery, he said.
The International Monetary Fund and Asian Development Bank last month trimmed their full-year growth forecasts for the country, predicting a slower 9.5% and 10% gross domestic product expansion, respectively, amid warnings of a third virus wave as soon as this month.
Sovereign bonds were lower, with the yield on benchmark 10-year bond rising by two basis point to 6.23%, while the yield on five-year bonds climbed six basis points. The rupee and stocks edged higher.
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