THE RESERVE Bank of India kept its benchmark rate unchanged. — COMMONS.WIKIMEDIA.ORG

INDIA’S CENTRAL BANK unexpectedly kept its benchmark interest rate unchanged as headline inflation breached its medium-term target for the first time in more than a year.

The repurchase rate was left at 5.15% in a unanimous decision, the Reserve Bank of India (RBI) said in a statement on Thursday. None of the 43 economists surveyed by Bloomberg predicted the move, with all expecting a cut. The Monetary Policy Committee (MPC) retained its accommodative policy stance, signaling rate increases continue to be off the table.

“The MPC recognizes that there is monetary policy space for future action,” the RBI said. “However, given the evolving growth-inflation dynamics, the MPC felt it appropriate to take a pause at this juncture.”

“This signals that RBI’s appetite for easing has nearly sapped as aggressive easing earlier in the year bore no fruits, while rising inflation has also been reducing the policy space,” said Prakash Sakpal, an economist at ING Groep NV economist. “Still, we don’t think inflation is going to be any hurdle to further RBI easing if needed.”

While central banks around the world have been loosening monetary policy to offset a growth slowdown, the RBI opted to pause and address bottlenecks that impede the transmission of previous rate cuts. It has so far delivered 135 basis points of easing in five moves this year, while banks have passed on much less to borrowers.

“The need at this juncture is to address impediments, which are holding back investments,” the RBI said.

Latest gross domestic product data showed growth slipped to a six-year low of 4.5% in the quarter to September, amid rising unemployment and a crisis in the shadow banking sector.

The RBI cut its full-year growth forecast for the fiscal year through March to 5% from 6.1%, while adding the inflation print in October was “much higher than expected.”

Inflation of 4.6% in October was higher than the RBI’s medium-term target of 4%, the first breach in more than a year. The central bank raised its inflation forecast for the second-half of the fiscal year to 4.7%-5.1% from 3.5%-3.7% seen previously.

The pickup in prices of vegetables is likely to continue in the coming months, the RBI said, alluding to the recent soaring costs of onions and tomatoes.

“Although industry continues to struggle, gauges of services activity, consumption and credit growth have all improved a little,” said Darren Aw, an Asia economist at Capital Economics Ltd. “And the effect of past monetary and fiscal stimulus should be felt soon. Our base case for now is that the easing cycle will come to an end in February.” — Bloomberg