Investing.com — The Reserve Bank of India (RBI) kept interest rates steady on Thursday, as expected, and said that it will remain hawkish on expectations of a potential surge in inflation over the coming months.
The RBI kept its at 6.50% as unanimously expected, after having flagged an end to its rate hike cycle earlier this year. But the bank will continue with tightening policy, amid an elevated near-term outlook for inflation.
RBI Governor Shaktikanta Das said in a live address that headline inflation is likely to surge in July and August, due to higher food prices amid adverse weather conditions.
A reading on (CPI) inflation is due on Friday, and is expected to show that inflation grew in July after a hotter-than-expected reading in June.
“The month of July witnessed an accentuation in food inflation, primarily due to vegetables. A substantial increase in inflation will occur in the near-term,” Das said.
Inflation has remained well above the RBI’s annual target of 4% so far this year, and is expected to remain there in the coming months.
Das also hiked the RBI’s outlook for consumer inflation for the year, with price growth set to remain comfortably above 5% for the remainder of the year. He also flagged a potential risk that inflation expectations would be anchored at higher levels due to continued shocks from food price inflation.
Still, Das said that the Indian economy was set to withstand growing global economic headwinds, citing resilience in local manufacturing and services activity.
The RBI governor reiterated that the Indian economy is forecast to grow 6.5% in the year to March 2024, slowing slightly from the 7.2% growth seen in fiscal 2023, but largely outperforming most of its global peers.
The rose 0.1% after the RBI decision, while the index fell slightly.
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