MUMBAI - The Reserve Bank of India announced on Wednesday that it will keep the policy repo rate unchanged at 5.25%, choosing to await further data before altering monetary policy in response to higher oil prices and related inflationary signals. The bank's six-member rate panel, which includes three external members, voted unanimously to hold rates and left the policy stance at "neutral."
Economists overwhelmingly expected the pause: 68 out of 72 respondents to a Reuters poll forecast the RBI would stand pat on its benchmark interest rate. In presenting the decision, RBI Governor Sanjay Malhotra said that although headline inflation has risen above the central bank's 4% medium-term target, the increase is largely driven by elevated fuel costs. He emphasized that broader price pressures remain in check.
The central bank's move contrasts with recent actions by some regional peers. Authorities in Indonesia, the Philippines and other countries have raised borrowing costs to counter the dual pressures of higher energy prices and currency strains linked to the Iran war. India, by contrast, had previously announced measures at an earlier meeting intended to attract capital inflows and provide support for the rupee.
Retail inflation in India rose above the 4% target in June for the first time in 17 months, according to the figures cited by the RBI, but policymakers project inflation will remain within the bank's tolerance band of 2% to 6% over the current fiscal year. That projection underpins the decision to keep policy unchanged for now.
At the same time, some indicators of economic activity are showing signs of modest strain. The private sector purchasing managers index fell to a five-year low in July, a development that likely factors into the RBI's cautious approach to tightening policy further while monitoring incoming data on prices and external pressures.
The unanimous vote to pause and the decision to retain a neutral stance signal that the RBI is prioritizing a wait-and-see approach as it gauges whether higher oil prices will translate into more persistent and widespread inflationary pressures.