RBI keeps rates steady, revises downward GDP growth forecast for FY2025

India's central bank is expected to keep its benchmark interest rate unchanged at 6.50% on Friday, as it struggles to contain rising inflation without hurting growth in Asia's third-largest economy.

The decision is in line with economists' expectations in a Reuters poll, as consumer price inflation in India jumped to a 14-month high of 6.21% in October, significantly above the central bank's 4% target and also above its 6% tolerance ceiling.

Reserve Bank of India Governor Shaktikanta Das said the central bank had revised India's GDP growth outlook for fiscal 2025 down to 6.6% – the RBI had forecast growth by 7.2% in October – adding that the slowdown in the national economy had “reached its lowest point” during the month of October. September term.

The central bank also announced a reduction in banks' cash reserve ratio by 50 basis points to 4.0% to strengthen liquidity in the economy.

The RBI has kept its interest rate steady since February last year, but a sharper-than-expected slowdown in India's economic growth has made the central bank's task more difficult.

Between July and September, the Indian economy increased by 5.4% compared to a year agosignificantly lower than the 6.5% expectations of economists polled by Reuters, and the slowest pace in almost two years.

The slowdown has raised fears that the RBI's restrictive policies could put the economy at risk of missing its 7.2% growth forecast for the year to March 2025.

Both Finance Minister Nirmala Sitharaman And Commerce Minister Piyush Goyal Reportedly called for lower borrowing costs to support loan demand and prop up a slowing economy.

“At a time when we want industries to grow and build capacity, bank interest rates will need to be much more affordable,” the Finance Minister said. at an event in Mumbai last month.

RBI chief Shaktikanta Das, however, ruled out an immediate rate cut, although the central bank has changed its policy. “neutral” of a more restrictive “accommodation withdrawal” at the October meeting.

Das, whose second term as central bank chief ends later this month, had said in October that an immediate cut in interest rates could be considered. “very premature” And “very, very risky”and that he was in no hurry to join global central banks in their easing efforts.

The Indian rupee fell to an all-time low against the US dollar earlier this week, according to LSEG data, and any monetary easing measures would likely put further pressure on the currency and likely trigger capital outflows.

Following Friday's announcement, the rupee was little changed at 84.666 against the greenback. The Nifty 50 index erased earlier losses to trade almost flat.

The benchmark index has has increased slightly since the publication of GDP last Friday and is up 13.7% since the start of the year. For comparison, the MSCI Asia Index excluding Japan – which allocates almost 23% of its funds to India – is down about 12% since the start of the year.

Indian bonds have rallied in recent days, with the benchmark 10-year yield falling on Thursday to 6.677%, its lowest level since February 2022, according to LSEG data.

The 10-year yield rose 3.1 basis points to 6.711% after the RBI decision.

—Amala Balakrishner of CNBC contributed to this report.