India’s central bank keeps rate steady after expansionary budget

The repurchase rate was maintained at 4%, Governor Shaktikanta Das said Friday. The decision was predicted by a majority of economists surveyed by Bloomberg.

India’s central bank kept interest rates on hold for a fourth straight meeting, days after Prime Minister Narendra Modi’s government unveiled an expansionary budget that could stoke inflationary pressures in the coming months.

The Reserve Bank of India, which lowered borrowing costs by 115 basis points last year, has been on pause mode since mid-2020 over inflation worries. (Mint)

The repurchase rate was maintained at 4%, Governor Shaktikanta Das said Friday. The decision was predicted by a majority of economists surveyed by Bloomberg. The six-member panel voted unanimously on the decision, while retaining its accommodative stance, he said.

The Reserve Bank of India, which lowered borrowing costs by 115 basis points last year, has been on pause mode since mid-2020 over inflation worries. Although inflation is currently back in the RBI’s comfort range, higher government spending risks stoking price pressures and complicating the consumer-price targeting central bank’s efforts to resume policy easing.

For its part, the RBI has started draining excess cash in the financial system to keep it from fanning inflationary pressures.