INDIA’S CENTRAL BANK left interest rates unchanged for a second straight meeting, while keeping the door open for more easing to support the economy when inflation eases.

The repurchase rate was maintained at 5.15% Thursday, as forecast by all 37 economists surveyed by Bloomberg. The six-member Monetary Policy Committee (MPC) voted unanimously on the decision and retained its accommodative stance adopted in June, the Reserve Bank of India (RBI) said in a statement.

“While this decision may be on expected lines and widely discounted, it is important not to discount the Reserve Bank of India,” Governor Shaktikanta Das told reporters in Mumbai. “It has to be kept in mind that the central bank has several instruments at its command that it can deploy to address the challenges the Indian economy faces in terms of sluggishness in growth momentum.”

Indian bonds traded firm after the decision, with the yield on the benchmark 10-year bonds steady at 6.50% and the rupee little changed against the dollar at 71.225.

The RBI took steps to spur credit growth in the economy, including removing a mandatory requirement for banks to set aside cash of 4% for every new loan extended to retail automobiles, residential housing and small businesses.

With the government’s budget this month failing to deliver any big-bang fiscal boost, the onus is now back on the RBI to spur the economy. Inflation though has surged to 7.35% in December, well above the central bank’s 2%-6% target.

While the MPC said it “recognizes that there is policy space available for future action,” the outlook for inflation is “highly uncertain at this juncture.” It added that “economic activity remains subdued and the few indicators that have moved up recently are yet to gain traction in a more broad-based manner.”

Weighing on the inflation outlook are volatile onion prices, rising costs of milk and pulses, and other items. The central bank raised its inflation projection for the six months to September to 5%-5.4% from 3.8%-4% previously.

The central bank has resorted to unorthodox measures to bring borrowing costs downs, such as adopting the Federal Reserve-style Operation Twist — buying long-end debt while selling short-tenor bonds.

“It is good that the central bank is keeping some powder dry,” said Chokkalingam G, the head of Equinomics Research & Advisory in Mumbai. “The cumulative cut in the borrowing cost has been pretty big in the last one year,” he said, referring to the RBI’s 135 basis points of easing in five moves in 2019.

MILD RECOVERY
Growth in the year starting April is expected to rebound to 6% from an estimated 5% in the current fiscal year, according to the RBI. That matches the lower end of the government’s 6%-6.5% forecast and comes amid early signs of a growth turnaround in the economy.

The RBI flagged downside risks to growth from the coronavirus, saying the pandemic may “impact tourist arrivals and global trade.”

On Wednesday, central banks across Southeast Asia signaled strong policy action to counter a hit to their economies from the viral outbreak.

The Bank of Thailand cut its benchmark interest rate to a record-low, while Singapore signaled there was room for the currency to ease. Bank Indonesia Governor Perry Warjiyo said the central bank will keep policy accommodative this year. — Bloomberg

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