India’s Monetary Policy Committee kept its benchmark policy rate unchanged as inflation remained above its target even though the economy continued to contract.
After a review, the committee unanimously voted to keep repo rate unchanged at 4%. The central bank that controls the reverse repo 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 hit in March, has kept rates on hold since May.
A Bloomberg poll of 30 economists showed that all expect a status quo on the repo rate.
The MPC also maintained its stance, reiterating the October guidance that policy would remain accommodative as long as necessary — at least during the current and into the next financial year — to revive growth on a durable basis.
Growth Outlook
The Indian economy contracted by 7.5% in the July-September 2020 quarter after a contraction of 23.9% in the April-June quarter. While better than estimated, the latest reading reaffirmed that India is amid a technical recession.
Governor Das, in his statement, said that high-frequency indicators in the ongoing quarter have continued to strengthen. Private consumption has improved and stalled projects have restarted.
Inflation Outlook
India’s retail inflation jumped to the highest in more than six years in October at 7.6%, remaining well above the MPC’s 4 (+/-2)% target for the seventh straight month.
In October, the MPC projected CPI inflation at 6.8% for the July-September quarter and was expected to range between 5.4% and 4.5% in the year’s second half.
Outlook for inflation has turned adverse in the last few months, Das said.
