The Reserve Bank of India on Wednesday kept its key lending rate unchanged, with Governor Sanjay Malhotra saying the central bank was balancing steady domestic growth against rising global risks.
The decision comes as India’s economy continues to show strong momentum, even as concerns grow over higher energy prices and supply disruptions linked to tensions around the Strait of Hormuz.
Announcing the outcome of the April 6–7 Monetary Policy Committee meeting, with brief deliberations continuing on Wednesday morning, Malhotra said the panel voted unanimously to keep the policy repo rate unchanged at 5.25 per cent.
“The Monetary Policy Committee met on 6th, 7th and briefly today in the morning to deliberate and decide on the policy repo rate. After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, the MPC voted unanimously to keep the policy repo rate unchanged under the liquidity facility at 5.25%,” he said.
He added that the standing deposit facility rate remains at 5 per cent, while the marginal standing facility rate and the bank rate continue at 5.5 per cent. The MPC has also retained its neutral policy stance.
Strong growth, but global shocks remain a concern
The RBI governor said India’s real GDP growth for the previous year is estimated at 7.6 per cent, reflecting strong underlying momentum in economic activity driven by consumption and investment.
“The real GDP growth for last year is estimated at 7.6%. This reflects the underlying strong momentum in economic activity supported by robust consumption and investment amidst supportive policy measures, ongoing structural reforms and favourable financial conditions,” Malhotra said.
At the same time, he cautioned that global headwinds could weigh on growth in the months ahead.
“Elevated energy and other commodity prices as also shocks to the availability of inputs due to disruptions in the Strait of Hormuz, are likely to impact growth this year,” he said.
Malhotra noted that the government has taken steps to ensure the availability of key inputs across sectors to limit the impact of such disruptions.
He also pointed to continued support from the services sector, the impact of GST rationalisation carried out last year, and strong balance sheets of financial institutions and corporates as factors that should help sustain economic activity.
Trade deficit widens as imports surge, exports stay weak
Malhotra said India’s merchandise exports saw a slight contraction of 0.2 per cent in the first two months of the year compared to the same period last year, mainly due to weakness in key global markets.
In contrast, imports rose sharply by over 22 per cent, largely driven by higher gold purchases, leading to a widening trade deficit.
He added that strong services exports and steady inward remittances are expected to keep the current account deficit within manageable levels for the previous year. However, global uncertainty and elevated energy prices could put pressure on the external balance in the current year.
Shipping disruptions, global demand may hit exports
The RBI governor warned that disruptions to major shipping routes, along with higher freight and insurance costs, could weigh on merchandise exports going forward.
“Merchandise exports could be adversely impacted by disruptions to key shipping routes, the concomitant rise in freight and insurance costs and lower global demand on account of the conflict,” he said.
At the same time, he noted that recently signed trade agreements with major partners could support exports and investment flows, while services exports are expected to remain resilient.
Taking these factors into account, the RBI has projected real GDP growth at 6.9 per cent for the current year, with quarterly estimates of 6.8 per cent in Q1, 6.7 per cent in Q2, 7 per cent in Q3 and 7.2 per cent in Q4.