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India’s central bank keeps interest rates the same and revises GDP forecast

By Ramla Soni

Rates remain unchanged as RBI seeks to achieve inflation target of four per cent

Indias central bank keeps interest rates the same and revises GDP forecast

India’s central bank kept its interest rates unchanged, with the rate at which it lends to commercial banks remaining at 5.15 per cent.

In its fifth bi-monthly policy statement, the Reserve Bank of India (RBI) said the decision to not revise the rate was in line with its objective of achieving its medium-term inflation target of four per cent, with an upper and lower limit of six per cent and two per cent respectively, while supporting growth.

RBI also revised down its GDP forecast for the full fiscal year ending March 2020 from 6.1 per cent predicted in its October policy to 5 per cent.

“While improved monetary transmission and a quick resolution of global trade tensions are possible upsides to growth projections, a delay in revival of domestic demand, a further slowdown in global economic activity and geo-political tensions are downside risks,” the RBI said.

Going forward, the RBI said the inflation outlook is likely to be influenced by several factors.

This includes the upsurge in prices of vegetables in immediate months. Price pressures seen in other food items such as milk, pulses, and sugar are likely to be sustained, with implications for the trajectory of food inflation.

Also both the 3-month and 1-year-ahead inflation expectations of households polled by the Reserve Bank have risen and these latent sentiment upsides are being reflected in other surveys as well, RBI said.

Crude oil prices are expected to remain range bound, barring any supply disruptions due to geo-political tensions.

Taking into consideration these factors, the CPI inflation projection is revised upwards to 5.1-4.7 per cent for H2:2019-20 and 4.0-3.8 per cent for H1:2020-21, with risks broadly balanced.

Meanwhile, the Indian rupee opened on a steady note at 71.53 against the US dollar in early trade ahead of the Reserve Bank of India's monetary policy decision.

Indian stocks were mixed after the decision, with the Nifty 50 down 0.21 per cent while the Sensex traded near flat.

FURTHER READING: India crypto ban: Has it happened, and what’s the financial impact?

FURTHER READING: India decides against joining Asia-Pacific free trade area

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