Investing.com– The Reserve Bank of India kept interest rates steady as expected on Friday, and said it will continue to keep monetary policy tight in the face of persistent upside risks for inflation.
The RBI kept its at 6.5% for a sixth consecutive meeting. The rate was at its highest level since December 2018, as the central bank embarked on an aggressive rate-hike spree in the wake of the COVID-19 pandemic.
Friday’s rate move was widely expected by markets, given that the RBI has signaled that it will continue to keep monetary conditions tight in the face of a potential resurgence in inflation.
RBI Governor Shaktikanta Das reiterated this warning on Friday, and said that the central bank will continue to maintain “disinflationary policy” in the coming months.
While fell steadily from highs hit in the aftermath of the COVID-19 pandemic, it still remained sticky at around 5% in the first two months of 2024. Inflation also remained well above the RBI’s 4% annual target.
Das said that food price inflation remained a key point of uncertainty for India’s inflation outlook, stating that “high and persistent food inflation could unhinge the anchoring of inflation expectations.”
Strength in the Indian economy also presents a potential upside for Indian inflation. The country was the fastest-growing major economy over the past two years, despite pressure from a rapid increase in interest rates.
Das said that Indian is expected to have crossed 7% for a third consecutive fiscal year.
Indian stocks hover below record highs, rupee near record low
The RBI’s move offered few surprises to Indian markets, with the benchmark and stock indexes falling slightly from record highs on Friday.
But the RBI decision also offered little support to the rupee, with the pair remaining close to record highs above 83.
