(Adds chart, quote)
By Swati Bhat and Sudipto Ganguly
MUMBAI, Feb 8 (Reuters) - The Reserve Bank of India
hiked its key repo rate by a quarter percentage point on
Wednesday as expected but surprised markets by leaving the door
open to more tightening, saying core inflation remained high.
The central bank said that its policy stance remains
focused on the withdrawal of accommodation, with four out of six
members voting in favour of that position.
Most analysts had expected a hike on Wednesday to be the
final increase in the RBI's current tightening cycle, which has
seen it raise rates by 250 bps since May last year.
A growing number of central banks around the world have
signalled a pause or halt in their tightening campaigns in
recent weeks as consumer inflation comes off the boil and growth
in their economies shows signs of softening.
Indian stocks extended modest gains after the decision,
while bond yields rose and the rupee was little changed.
The monetary policy committee (MPC), comprising three
members from the central bank and three external members, raised
the key lending rate or the repo rate to 6.50%,
also in a split decision. Four of the six members voted in
favour of the move.
"The stickiness of core or underlying inflation is a matter
of concern. We need to see a decisive moderation in inflation.
We have to remain unwavering in our commitment to bring down
inflation," RBI Governor Shaktikanta Das said as he announced
the committee's decision.
While the effects of earlier rate hikes are still working
their way through the economy, further calibrated monetary
policy action is warranted, Das added.
In a poll conducted ahead of the federal budget on Feb. 1,
more than three-quarters of economists, 40 of 52, had expected
the RBI to raise the repo rate by 25 bps. The remaining 12
predicted no change.
Das said that the inflation-adjusted, real interest rate
remains below pre-pandemic levels and liquidity remains surplus,
even though it is lower than during the pandemic.
The RBI has brought down the liquidity surplus in the
banking system to below 2 trillion rupees ($24.19 billion) from
around 9-10 trillion rupees in the aftermath of pandemic-related
support measures.
India's annual retail inflation rate eased to 5.72% in
December from 5.88% in the previous month, falling below the
RBI's upper tolerance band of 2%-6% for a second straight month,
though core inflation, which excludes more volatile food and
fuel prices, was still running at 6.1%.
Consumer inflation is projected to be at 6.5% in the fiscal
year 2023 and 5.3% for the fiscal year 2024.
"It seems reasonable to conclude that until (some) measures
of inflation present less of a threat, by falling below 6% and
remaining there for a couple of months, we can't rule out
further rate hikes," economists at ING said in a note.
"So we will be amending our forecasts and adding a
further 25 bps, taking peak policy rates to 6.75% after this
latest increase and pushing back the timing of eventual rate
cuts until next year."
Capital Economics said it believes the hiking cycle has
ended, but noted there was clearly a possibility of another
increase in April, with plenty hinging on inflation readings for
January and February.
Das added that the Indian economy looks resilient even
though considerable uncertainties remain on global commodity
prices. The RBI has projected a growth rate of 6.4% for fiscal
year 2024.
"The global economic outlook does not look as grim now as it
did a few months ago. Growth prospects in major economies have
improved, while inflation is on a descent though still remains
well-above target in major economies. The situation remains
fluid and uncertain," Das said.
Deputy RBI Governor Michael Patra said the GDP projections
for the next financial year look achievable.
"Core inflation is sticky... But (it) will moderate if
monetary policy remains resolute," Patra said in a post meeting
news conference.
The Indian rupee was little changed to the U.S.
dollar at 82.69 compared with 82.67 prior to the policy
announcement. It briefly rose to 82.62 after RBI maintained its
withdrawal of accommodation stance.
The benchmark bond yield was at 7.3391%
against 7.3124% before the policy decision and the previous
close of 7.3102%.
The Nifty 50 index was up 0.78% at 17,860.50, as of
11:39 a.m. IST, while the S&P BSE Sensex rose 0.69% to
60,701.39.
($1 = 82.6830 Indian rupees)
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India Real Interest Rates Settle At Well-Below Peak India's monetary tightening continues MPC's voting patterns ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Swati Bhat and Sudipto Ganguly; additonal
reporting by Nupur Anand; Editing by Kim Coghill)
+91-22-69217812; Reuters Messaging:
swati.bhat.thomsonreuters.com@reuters.net))
