Coronavirus | India keeps interest rates unchanged despite high inflation

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Coronavirus | India keeps interest rates unchanged despite high inflation

The Indian central bank kept interest rates unchanged at a record low setting aside concerns about high inflation to support an economy bracing for the impact of an impending wave of the pandemic.

The main repurchase rate of the Reserve Bank of India's six member Monetary Policy Committee was dropped on Friday by all 29 economists as predicted by all 29 economists in a Bloomberg survey. Policy makers voted 5 - 1 in favor of keeping the stance accommodative, a departure from the past when they were unanimous on the need to keep rates lower for longer to support growth.

That follows the pace of inflation in the past two months including the RBI's upper tolerance limit of 6%, a trend that was mainly attributed to supply side disruption caused by the coronavirus pandemic. However, recent high-frequency indicators from purchasing managers' surveys to jobless data showed that the economy's recovery was muted, necessitating more support.

The recent inflation pressures are making in a concern, Governor Shaktikanta Das said in an online broadcast, while calling the trend transitory. At this time, continuing support is required from all sides - fiscal and monetary - to nurture the recovery, he said.

The International Monetary Fund and Asian Development Bank recently cut their full year growth forecasts for the country, predicting a slower 9.5% and 10% gross domestic product expansion, respectively, amid warnings of a third virus wave as soon as this month.

In the US, common bonds were lower with the yield on benchmark five-year 10-year bond rising by two basis points to 6.23%, while the yield of benchmark 10 year bonds climbed six basis points. The rupee and stocks edged higher.