RBI keeps rates unchanged, cuts GDP growth forecast for FY2025

India’s central bank is expected to keep its key interest rate unchanged at 6.50% on Friday as it struggles to contain rising inflation without affecting growth in Asia’s third-largest economy.

The decision was in line with economists’ forecasts in a Reuters poll as India’s consumer price inflation rose to a 14-month high of 6.21% in October, significantly exceeding 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 up India’s GDP growth forecast for the 2025 financial year to 6.6%, from the RBI’s forecast of 7.2% growth in October, adding that the domestic recession was “over” in 2025. September quarter.

The central bank also announced a 50 basis point reduction in the banks’ cash reserve ratio to 4.0% to strengthen liquidity in the economy.

The RBI has kept interest rates unchanged since February last year, but a sharper-than-expected slowdown in India’s economic growth has made the central bank’s task more difficult.

July to September Indian Economy increased by 5.4% compared to the previous yearsharply below the 6.5% forecast by economists polled by Reuters, and marked the slowest pace in nearly two years.

The slowdown has raised concerns that the IRB’s restrictive policies could risk the economy missing the 7.2% growth forecast for the year to March 2025.

Both Finance Minister Nirmala Sitharaman and Minister of Commerce Piyush Goyal have reportedly called for lower borrowing costs to boost credit demand and support the slowing economy.

“At a time when we want industries to step up and increase capacity, bank interest rates will have to be much more affordable,” the finance minister said. at an event in Mumbai last month.

However, RBI chief Shaktikanta Das has ruled out an immediate rate cut even as the central bank changed its policy stance to “neutral” from more restrictive “accommodation withdrawal” at the October meeting.

Dass, whose second term at the central bank ends later this month, had hinted in October that an interest rate cut could be imminent. “very premature” and “very, very risky”and that he was in no rush to join the world’s central banks in easing.

The Indian rupee fell to a record low against the US dollar earlier this week, according to LSEG data, and any monetary easing measures are likely to put further pressure on the currency and possibly lead to capital outflows.

The rupee was little changed at 84.666 against the dear bank after Friday’s announcement. The Nifty 50 index erased earlier losses to trade almost flat.

The benchmark index has GDP has increased slightly since publication last Friday and is up 13.7% year-to-date. In comparison, 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 level since February 2022, LSEG data showed.

Following the RBI decision, the 10-year yield rose by 3.1 basis points to 6.711%.

— CNBC’s Amala Balakrishner contributed to this report.