Investing.com – The Reserve Bank of India kept interest rates unchanged on Friday, in line with expectations, but slightly raised its annual growth forecast for the Indian economy thanks to continued strong consumption.
The Reserve Bank of India has kept its policy repo rate at 6.5% for the seventh consecutive time, after suggesting that the rate hike cycle has come to an end in 2023.
Will continue to stick to tight policy even if the Federal Reserve cuts rates
However, the Reserve Bank of India has shown few signs that it plans to start easing policy in the short term. Central bank governor Shaktikanta Das made it clear that the central bank will continue to withdraw policy support until the consumer price index (CPI) can fall steadily to 4%.
Although the CPI has fallen sharply over the past year, it has encountered some challenges in reaching the 4% target set by the Reserve Bank of India this year.
Shaktikanta Das maintained the Reserve Bank of India’s annual CPI inflation forecast between 4% and 4.5%. He stressed that food prices remain the biggest problem for overall inflation.
He also said that even if the Federal Reserve and other major central banks plan to ease policy this year, the Reserve Bank of India does not intend to follow suit immediately.
GDP forecasts revised upwards
Despite high interest rates and persistent inflationary pressures, the Reserve Bank of India has slightly raised its annual gross domestic product (GDP) forecast for the current fiscal year, mainly due to strong consumer spending and urban residents’ consumption.
Real GDP growth is now expected to be 7.2% in the current fiscal year, higher than the previous forecast of 7%. Thanks to the post-COVID-19 economic boom, India’s economy has achieved GDP growth of more than 7% for the fourth consecutive year, and has become the fastest growing major economy in the past three years.
However, some doubts about the economy have quietly emerged in Indian markets this week after the National Democratic Alliance led by the BJP won a much smaller majority than expected in the 2024 general election. This has raised concerns about whether Prime Minister Narendra Modi can continue to push forward comprehensive economic reforms with little opposition.