India’s RBI Holds Key Rate as It Forecasts 9.5% GDP Plunge

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India’s central bank kept interest rates unchanged for the second straight meeting, with above-target inflation preventing policy makers from delivering stimulus for an economy it sees contracting 9.5% this fiscal year.

The Monetary Policy Committee retained the benchmark repurchase rate at 4%, as predicted by all 32 economists in a Bloomberg survey, and kept its policy stance accommodative, implying it could ease again.

The accommodative stance would remain “as long as necessary, at least through the current financial year and into the next year to revive growth on a durable basis and mitigate the impact of Covid-19 while ensuring that inflation remains within the target going forward,” Reserve Bank of India Governor Shaktikanta Das said in a video livestream on Friday.

The decision was the first under anewly constituted MPC, which includes three external members who have in the past supported monetary and fiscal stimulus to boost the economy. The previous MPC had cut interest rates by 115 basis points this year.

Sovereign bonds were largely unchanged in response to the widely-expected decision. The 10-year yield is down 1 basis point at 6.01%. The rupee was up 0.1% to 73.1775 to a dollar.

Das outlined new forecasts for economic growth and inflation, providing the central bank’s first official assessment of the damaging effect of the pandemic on Asia’s third-largest economy. The RBI sees inflation easing close to 4% in the fiscal fourth-quarter ending March — the midpoint of its 2%-6% target band. It sees gross domestic product contracting 9.5% in fiscal 2021, but a faster rebound is feasible.

The governor also said it stands ready to take further measures on liquidity, and announced a range of steps on Friday.

The economy has been slow to recover as the coronavirus continues to spread rapidly in India, home to the second-highest number of virus cases in the world. The Organisation for Economic Co-operation and Development forecasts the economy will shrink 10.2% this year, while Goldman Sachs Group Inc. predicts a14.8% contraction.

“We suggest that GDP growth may break out of contraction and turn positive by” the fiscal fourth-quarter, Das said.

— With assistance by Tomoko Sato, Vrishti Beniwal, Subhadip Sircar, and Shwetha Sunil

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