RBI Predicts Rise In Inflation But Keeps Key Lending Rate Unchanged

The Reserve Bank of India (RBI) today kept the key lending rate unchanged at 6.5% for the third time in a row, but said inflation rates are likely to rise led by vegetable prices.

RBI Governor Shaktikanta Das said Monetary Policy Committee has unanimously decided to keep the policy repo rate unchanged. This means the loan interest rates too are likely to remain unchanged.

The Indian economy is exuding enhanced strength and stability despite global shocks, said the Governor, adding that it is contributing 15% to global growth. The country is uniquely placed to benefit from the ongoing transformational shifts, he said.

The central bank raised the inflation forecast for the current financial year from 5.1% to 5.4%, citing rising vegetable prices. The inflation rate shot up from 4.3% in May to 4.8% in June, with the figure expected to rise further in July and August.

"A spike in tomato prices led to accentuating food inflation in July," said the Governor, stating that the price rise was short-term and it will reduce in the coming months.

Mr Das said the cumulative rate hikes taken so far are working their way into the economy.

The developments require heightened vigil on the evolving inflation trajectory, said Mr Das, adding that the domestic economic activity is holding up well and is likely to retain momentum.

The RBI also kept the growth forecast for the current fiscal unchanged at 6.5% and the real GDP growth for the first quarter of the next fiscal at an estimated 6.6%.

He said spillovers from weak external demand and geopolitical tensions pose risk to growth, and global growth is likely to remain low by historical standards. While the pace of monetary policy tightening has slowed, policy rates could be higher for longer, he added.