RBI keeps rates steady, revises down fiscal year 2025 GDP growth forecast

India's central bank was expected to keep the benchmark interest rate unchanged at 6.50% on Friday as it struggles to contain rising inflation without hurting growth in the country's third-largest economy. Asia.

The decision came in line with the expectations of economists in a Reuters poll, as India's consumer price inflation changed so far +6.21% compared to yesterday. in October, well above the central bank's target of 4% and also above its tolerance ceiling of 6%.

Reserve Bank of India Governor Shaktikanta Das said the central bank had revised India's GDP growth forecast for fiscal year 2025 to 6.6% – RBI had forecast 7.2% growth in October – adding that the slowdown in the domestic economy had “ended” in the fourth of September.

The central bank also announced a cut in banks' reserve ratio by 50 basis points to 4.0% to strengthen liquidity in the economy.

The RBI has kept the interest rate steady since last February, but a sharper-than-expected slowdown in India's economic growth has made the central bank's job more difficult.

In the period July to September, the Indian economy changed so far +5.4% compared to yesterdaysignificantly missed Reuters economists' expectations of 6.5%, and marked the slowest pace in nearly two years.

The slowdown has fueled concerns that the RBI's restrictive policies could put the economy at risk of missing its forecast of 7.2% growth for the year through March 2025.

Both Finance Minister Nirmala Sitharaman and Commerce Minister Piyush Goyal reportedly asked for lower borrowing costs to bolster loan demand and support a slowing economy.

“At a time when we want businesses to ramp up and build capacity, bank interest rates must be much cheaper,” the finance minister said. at an event in Mumbai last month.

RBI chief Shaktikanta Das, however, has ruled out an immediate rate cut, although the central bank shifted its policy stance to “neutral” from A more restrictive “withdrawal of accommodation” at the October meeting.

Das, whose second term at the head of the central bank ends later this month, had said in October that an interest rate cut could be made immediately. “very early” and “very, very dangerous”and that he was in no rush to join the global central banks in discounting.

The Indian rupee fell to record lows against the US dollar earlier this week, LSEG data showed, and monetary easing measures are likely to put further pressure on the currency and possibly trigger capital outflows .

After the announcement on Friday, the rupee was little changed at 84.666 against a greenback. The Nifty 50 index erased earlier losses to trade almost flat.

The benchmark index has increased slightly since the GDP was released This past Friday and is up 13.7% since the beginning of the year. For comparison, the MSCI Asia ex Japan Index – which allocates nearly 23% of its funds to India – is down about 12% so far this year.

Indian bonds have rallied in recent days with the benchmark 10-year yield falling to 6.677% on Thursday, the lowest since February 2022, according to LSEG data.

The 10-year yield rose 3.1 basis points to 6.711% after the RBI decision.

— CNBC's Amala Balakrishner contributed to this report.