India’s Monetary Policy Committee kept its benchmark benchmark rate unchanged, as inflation remained above its target despite the economy continuing to contract.
After a review, the committee voted unanimously to keep the buyback rate unchanged at 4%. The central bank that controls the reverse repurchase rate separately decided to keep it unchanged at 3.35%. The committee, which has cut rates by 115 basis points since the Covid-19 crisis in March, has kept rates on hold since May.
A Bloomberg survey of 30 economists showed they all expect a status quo in the buyback rate.
The MPC also maintained its position, reiterating the October orientation that the policy would remain flexible as long as necessary, at least during the current financial year and next, to reactivate growth in a lasting way.
Growth outlook
The Indian economy contracted 7.5% in the July-September 2020 quarter after a 23.9% contraction in the April-June quarter. While better than estimated, the latest reading reaffirmed that India is in the midst of a technical recession.
Governor Das, in his statement, said that the high-frequency indicators in the current quarter have continued to strengthen. Private consumption has improved and stalled projects have restarted.
Inflation outlook
India’s retail inflation jumped to its highest level in more than six years in October at 7.6%, remaining well above MPC’s target of 4 (+/- 2) for the seventh consecutive month.
In October, the MPC projected a CPI inflation of 6.8% for the July-September quarter and it was expected to range between 5.4% and 4.5% in the second half of the year.
The inflation outlook has turned bleak in recent months, Das said.
