India's monetary policy panel decided at its meeting earlier this month to pause, judging the current interest appropriate and allowing more time for the past cuts to feed through to borrowing costs.
The six-member Monetary Policy Committee, headed by Reserve Bank of India Governor Sanjay Malhotra, voted unanimously to keep the repurchase rate unchanged at 5.25%.
“Given the present state of the economy and its outlook – buoyant growth and benign inflation – I feel the current policy rate is appropriate,” Malhotra said, the minutes released Friday showed.
The policy review took place days after US President Donald Trump said he would reduce reciprocal tariffs on Indian goods to 18% from 25%, setting them below levels imposed on most Asian peers. An additional 25% punitive duty linked to India's purchases of Russian oil was also scrapped.
The agreement has come as a relief for policymakers and lifted optimism about the growth outlook in Asia's third-largest economy. A senior government official said the country could exceed its own growth forecast of as much as 7.2% for the coming fiscal year after the US deal.
India's inflation remained relatively benign under a revised data series published earlier this month, bolstering the case for the central bank to keep rates on hold.
“Low inflation continues to be a boon,” said Deputy Governor Poonam Gupta at the panel's meeting. Inflation will likely remain benign across sectors in the next fiscal year, she said. As of now, risk to inflation from external sources, such as oil prices, commodity prices, or pass through of the exchange rate “is perceived to be limited as well.”
The deputy governor also said steady capacity utilization indicated “there does not seem to be a risk of buoyant economic activity resulting in higher inflation.”
Here's what other members in the panel said:
- Indranil Bhattacharyya, an executive director at the central bank said “the current policy rate and the stance offers scope for remaining growth-supportive without stoking inflation,” while the “efficacy of monetary policy transmission also depends critically on the persistence and consistency of the policy signal”
- Nagesh Kumar, external member, said the EU-India free trade agreement, followed quickly by the announcement of the US-India trade deal “have helped to lift the sentiment,” on growth
- External member Saugata Bhattacharya said “high frequency indicators signal resilience in economic activity”
- Ram Singh said while the MPC target headline inflation, “the composition of inflation too is important as monetary policy has varying impact on different constituents of inflation,” but the underlying price pressure “continues to be low”
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