India’s central bank holds rates again, as expected
Shares extend losses as RBI keeps rates unchanged
The Reserve Bank of India (RBI) kept its key interest rate unchanged on Thursday, as widely expected, as it continued its efforts to sustainably lower inflation towards its 4 per cent target.
The Monetary Policy Committee (MPC), which consists of three RBI and three external members, kept the repo rate unchanged at 6.50 per cent for a ninth straight policy meeting.
The monetary policy stance was retained at ‘withdrawal of accommodation’ to aid the MPC’s focus on bringing inflation towards the target, with four of the six members voting in its favour. All 59 economists in the Reuters poll conducted in late July predicted the central bank would stand pat on rates.
The MPC last changed rates in February 2023, when the policy rate was raised to 6.50 per cent. The annual retail inflation rate rose for the first time in five months in June, climbing above 5 per cent on the back of a jump in food prices.
Still, investors are hopeful the RBI will soften its overall stance on inflation following the recent souring of global market sentiment and firmer expectations the Federal Reserve will cut interest rates in September.
Global equities and currencies tanked early this week as the Bank of Japan hiked rates to their highest levels since 2008 last week and fears of a US recession rose on the back of weak employment numbers.
While Indian equities fared better, the rupee fell to all-time lows, prompting central bank intervention. Strong GDP growth in the Indian economy has allowed the central bank to remain focused on inflation control.
Despite some slowdown expected from the 8.2pc expansion in fiscal 2024, India will remain among the fastestgrowing economies globally if its 7.2pc expected growth is achieved.
Meanwhile, Indian shares extended their losses on Thursday as the Reserve Bank of India stood pat on interest rates, as expected, and maintained its hawkish policy stance, citing stubbornly high food inflation.
The NSE Nifty 50 index fell 0.64 per cent to 24,143.7, as of 10:11 a.m IST, and the S&P BSE Sensex shed 0.62 per cent to 78,945.26. Both indexes were down about 0.3 per cent ahead of the decision.
The RBI kept key policy ranges unchanged for a ninth consecutive meeting amid inflationary pressures and maintained its ‘withdrawal of accommodation’ policy stance, with the governor flagging stubborn food inflation. Eleven of the 13 major sectors logged losses.
IT and energy stocks shed about 1 per cent each and were the top sectoral losers. Tata Motors gained about 1.6 per cent, the most on the Nifty 50. Multiple brokerages said its new “Curvv.ev” car could gain market shares as it was priced at par with regular cars and had a higher range than most other EVs.
Earlier, Indian government bond yields were barely changed in early trading on Thursday, as traders awaited commentary from the Reserve Bank of India for liquidity management along with its monetary policy decision.
The benchmark 10-year yield was at 6.8624 per cent as of 9:40 a.m. IST, compared to its previous close of 6.8632 per cent.
A slim majority of economists in a Reuters poll are expecting the first rate cut in October-December. While most expect 50-75 basis points of cuts, Bank of America’s Vikas Jain said he expects 100 bps of cuts.