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India Central Bank maintains interest rates amid easing inflation

  • By Al Mayadeen English
  • Source: Agencies
  • 8 Jun 2023 11:12
  • 1 Shares
4 Min Read

The Indian Central Bank is keeping its interest rates the same as the inflation in the country is cooling amid bettering economic conditions in the country.

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  • A security guard stands at the entrance of the Reserve Bank of India in Mumbai, India, October 4, 2019 (AP)
    A security guard stands at the entrance of the Reserve Bank of India in Mumbai, India, October 4, 2019 (AP)

The Indian Central Bank on Thursday agreed to maintain interest rates for the second meeting in a row in light of cooling inflation, though the Indian institution warned that the rest of the world was at risk due to rising global inflation.

The benchmark repurchase rate was still at 6.50% by the Reserve Bank of India (RBI), governor Saktikanta Das said during a webcast, meeting expectations regarding the issue.

"The Monetary Policy Committee decided to remain focused on the withdrawal of accommodation to ensure that inflation progressively aligns with the target while supporting growth," Das said.

"Headline inflation still remains above the target, and being within the tolerance band is not enough. Our goal is to achieve the target of 4.0% going forward," the governor added.

This comes after inflation reached red-hot levels in April, 2022, peaking at 7.79%, much higher than the RBI had set its target range, 2-6%. The inflation rates went on to cool down in April, reaching 4.7%, and the interest rates have been the same since.

The Indian economy, despite being afflicted by soaring inflation, expanded 6.1% in the final quarter of the fiscal year spanning January-March, inflating annual growth to 7.2%.

The RBI, among many other central banks, was quick to raise interest rates to mitigate rising consumer prices, but despite cooling inflation, the bank's chief underlined that the warming El Nino weather phenomenon could weaken the monsoon and cause crop prices to rise, giving rise to inflation.

The agricultural sector is highly significant in India and a major cornerstone of the country's economy. The monsoon, an annual phenomenon, is crucial to the country's food output, as the lack of it would lead to food scarcity.

"Close and continued vigil on the evolving inflation outlook is absolutely necessary, especially as the monsoon outlook and the impact of El Nino remain uncertain," Das said.

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"Geopolitical tensions, uncertainties around the monsoon and international commodity prices, especially sugar and rice and also crude oil, and the volatility in global financial markets pose upside risks to inflation," the banking chief underlined.

During the last meeting, which was held in April, the RBI left the benchmark repurchase rate at 6.50% after the recorded hikes at six of its prior meetings since May 2022. 

The hike in inflation defied all market expectations of a 25 basis points hike and witnessed a recent increase by the Federal Reserve, the Bank of England, and the European Central Bank. 

In a statement, bank governor Shaktikanta Das said, "What we are witnessing today is unprecedented uncertainty in geopolitics, economic activity, price pressures, and financial markets never seen before."

In February, inflation remained at 6.44 percent, above the RBI's upper hand of six percent, but in April 2022, it dropped from a peak of 7.79 percent.  "Our job is not yet finished, and the war against inflation has to continue," Das said. "And this has to continue until we see a durable decline in inflation closer to the target." 

Meanwhile, the inflation rate in the UK hit a four-decade high in January, increasing to 11.1%, and the government explained the reasons for this economic downturn as being due to the Covid pandemic and the war in Ukraine.

The Resolution Foundation think tank assessed that the British public is set for more economic grievances as the value of their income continues to deteriorate. It reported that British families have only experienced half of the lost income they are expected to suffer during 2023.  

Additionally, per the preliminary estimates of the statistical office of the European Union, Eurostat, the annual inflation in 19 eurozone countries slowed down to 6.9% in March from 8.5% month-on-month.

In a statement, Eurostat said that the "Euro area annual inflation is expected to be 6.9% in March 2023, down from 8.5% in February, according to a flash estimate from Eurostat."

The annual inflation rate across the Eurozone in December reached 9.2%, after which it dropped to 8.6% in January.

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