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03 March 2024

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India’s central bank holds rates despite inflation

BI Desk || BusinessInsider

Published: 00:12, 7 October 2023  
India’s central bank holds rates despite inflation

Photo: Collected

India's central bank left interest rates unchanged again on Friday despite an inflation spike that has sparked official concern over the impact of higher food prices caused by extreme weather.

The benchmark repo rate has stood at 6.50 percent since February, following a series of hikes by the Reserve Bank of India (RBI) to curb rising prices last year, reports BSS/AFP.

Inflation spiked at 7.4 percent in July before moderating to 6.8 percent the following month, still well above the RBI benchmark.

The bank had "identified high inflation as a risk to macroeconomic stability and sustainable growth" and "remains resolutely focused on aligning inflation to the four percent target", RBI governor Shaktikanta Das said.

Prices for food staples -- including wheat, rice and tomatoes -- have shot up in recent months, partly because of floods, record-high temperatures and pest attacks in production belts.

Finance Minister Nirmala Sitharaman told parliament in July that the government was taking steps "to contain high prices which are hitting common citizens".

The government has put curbs on some rice exports to put downward pressure on prices.

Food prices have since eased but "the overall inflation outlook is clouded by uncertainties from the fall in" domestic sowing of key crops and "volatile global food and energy prices," Das said.

India's inflation peaked at 7.8 percent last year in the wake of the global economic fallout from the Russian invasion of Ukraine, which prompted spikes in food and oil costs.

The World Bank this week said India would nonetheless remain one of the world's fastest-growing economies this year, with strong domestic demand and investment helping it weather inflation.

India overtook Britain last year to become the world's fifth-largest economy, and recorded 7.8 percent growth for the June quarter, the most recent figure available.

The world's most populous country is grappling with increasingly frequent extreme weather events -- which scientists attribute to climate change.

India's weather department has declared a heatwave almost every year in the last decade, with temperatures sometimes touching 50 degrees Celsius (122 degrees Fahrenheit).