India's Reserve Bank held its benchmark repo rate at 6.5% on Wednesday, resisting pressure to cut despite a weakening rupee and slowing economic growth. The central bank's monetary policy committee voted unanimously to maintain the rate, citing persistent inflation concerns that remain above its 4% target.
The rupee hit fresh lows against the dollar this week, trading near 84.50, pressured by capital outflows and rising US Treasury yields. Yet RBI Governor Sanjay Malhotra signaled the bank prioritizes price stability over currency support. Inflation data released earlier this month showed consumer prices rising 5.5% year-over-year, constraining the bank's room to ease monetary policy despite growth headwinds.
India's gross domestic product expanded 5.4% in the July-September quarter, the slowest pace in two years. Analysts had expected the RBI to consider rate cuts given this deceleration, but the inflation reading deterred action. The central bank flagged core inflation, which strips out volatile food and energy prices, as particularly sticky.
The hold keeps the repo rate elevated as global monetary conditions tighten. The Federal Reserve has held rates near 4.25%-4.5%, and US bond yields remain elevated, creating outflow pressure on emerging market assets including Indian equities and the rupee. The NSE Nifty 50 index has declined roughly 8% from September highs.
Malhotra noted the RBI remains focused on the inflation target but acknowledged growth concerns. The bank will monitor food price pressures and external headwinds closely. Next policy review occurs in February 2025. Analysts expect the RBI may cut rates in the first quarter if inflation moderates and global conditions stabilize, but no easing appears imminent given current economic data.
The central bank's cautious stance reflects a difficult