Financial News: India Central Bank Keeps Rate Unchanged

India Central Bank Keeps Rate Unchanged

(RTTNews) - The Reserve Bank of India left its interest rate unchanged on Wednesday and downgraded its inflation forecast citing the reduction in goods and services tax rates.

The Monetary Policy Committee, led by Governor Sanjay Malhotra, unanimously decided to hold the policy repo rate at 5.50 percent. The MPC also decided to continue with the neutral stance.

The bank had reduced the rate by 50 basis points in June and 25 basis points each in February and April.

"The current macroeconomic conditions and the outlook has opened up policy space for further supporting growth," the bank said.

Policymakers noted that the impact of the front-loaded monetary policy actions and the recent fiscal measures is still playing out. The trade related uncertainties are also unfolding.

"The MPC, therefore, considered it prudent to wait for the impact of policy actions to play out and greater clarity to emerge before charting the next course of action," the bank said in a statement.

ING economist Deepali Bhargava said a rate cut in December is a distinct possibility, especially if India cannot improve tariff terms with the US.

For the RBI to consider further rate cuts, there must be clear evidence that the drag from tariffs on GDP growth is significant, and that the recent GST reductions are effectively translating into lower inflation, she noted.

The bank assessed that headline inflation outcome will be softer than previously projected, primarily on account of the goods and services tax rate cuts and benign food prices. The bank lowered its inflation outlook for the current financial year to 2.6 percent from 3.1 percent.

Real GDP growth for 2025-26 was projected at 6.8 percent, which was revised up from 6.5 percent estimated in August.

However, the bank said growth is likely to be slightly slower than previously projected going forward due to the higher trade tariffs.

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