The Reserve Bank of India (RBI) said that against the background of declining domestic inflation and economic stability, it was decided to keep the key interest rate at the same level (6.5%). Economists also expected the rate to remain at 6.5%. The RBI reported that 5 out of 6 committee members voted to keep the rate unchanged.
"Economic growth is accelerating faster than previously expected, while inflation is on a downward trajectory," the head of the Central Bank said, warning that inflation has not yet reached the target of "4% on a long-term basis."
According to official data, in December, CPI growth accelerated to 5.69% per annum (a 4-month high) from 5.55% per annum in November, but turned out to be below forecasts (5.87%). Housing inflation was steady at 3.6% and prices for fuel and light costs fell by 1% after a 0.8% drop in November. The RBI expects annual inflation of 4.5% for the year starting April, following projected inflation of 5.4% for this fiscal year.
"The RBI will closely monitor changes in food prices, which may negate the benefits of lower core inflation. Monetary policy must continue to be actively discriminatory to align inflation"with the 4% target," the head of the Central Bank added.
Economists said that the results of the RBI meeting confirmed expectations that the Central Bank may begin a cycle of monetary policy easing only in the second half of 2024, that is, much later than almost all other major emerging markets.