RBI keeps repo rate on hold at 6 percent, stance ‘neutral’

MUMBAI (Reuters) – The Reserve Bank of India kept its policy rate unchanged on Wednesday, as widely expected, after inflation accelerated to a seven-month high and stronger economic growth reduced the need for monetary stimulus.

All but two of 54 analysts in a Reuters poll had predicted the repo rate would be left for a second straight meeting at 6.00 percent, its lowest since November 2010.

The RBI also kept the reverse repo rate unchanged at 5.75 percent.

Wednesday’s decisions were widely predicted after the annual rate of consumer inflation increased in October to 3.58 percent, driven by higher food and crude oil prices. That’s still low by Indian standards, but not far from the central bank’s 4 percent target.

Nonetheless, some analysts still see scope for a rate cut should inflation accelerate less than expected. That is because the economy, though recovering from July’s bumpy launch of a national sales tax, is not yet growing fast enough to create the jobs needed for India’s young workforce.

The RBI on Wednesday left its policy stance “neutral”, which might leave the door open for a rate move at its next meeting in February. The central bank said it would track economic growth and inflation data, adding that risks to both “evenly balanced”.

Five members of the Monetary Policy Committee (MPC) voted to keep rates unchanged, with one voting for a 25 bps cut.

“Keeping in mind the output gap dynamics, the MPC decided to continue with the neutral stance and watch the incoming data carefully,” the RBI said in a statement.

India’s benchmark 10-year bond yield fell 2 basis points to 7.05 percent from around 7.07 percent before the policy decision. But the rupee weakened to 64.52 per dollar from around 64.47, while the broader NSE share index was down 0.8 percent for the day.

The RBI has turned more strident on inflation since cutting the repo rate by 25 basis points in August, its only policy easing this year. Inflation has accelerated after falling to 1.46 percent in June, the lowest in at least five years.

On Wednesday, the RBI slightly raised its inflation projection to between 4.3 percent and 4.7 percent in the six months ending in March 2018.

The central bank retained its projection for gross value added growth, a measure of economic expansion it prefers, at 6.7 percent, the same as its forecast in October.