In a widely anticipated move, the Reserve Bank of India (RBI) held its benchmark interest rate steady on Friday. It explained that strong economic growth will allow it to concentrate on bringing inflation down to its medium-term target of 4%.
The central bank maintained its forecast for inflation this year but increased its estimate for economic growth, even as it warned about ongoing pressure on food prices. According to Governor Shaktikanta Das, the RBI wants to ensure that inflation consistently falls within its target.
For the eighth consecutive policy meeting, the Monetary Policy Committee (MPC), composed of three RBI and three external members, maintained the repo rate at 6.50%.
Four of the six MPC members supported the decision regarding the repo rate. Two external committee members, JR Varma and Ashima Goyal, favored a 25 basis point rate reduction.
India is the third-largest economy in Asia. Its GDP expanded more quickly than anticipated in the January–March quarter, but investors were unnerved by an unexpected result in the recently held national elections. A slower rate of fiscal consolidation combined with higher welfare spending has sparked worries about a weakened mandate for the National Democratic Alliance, led by the ruling Bharatiya Janata Party.
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