Indian central bank keeps key policy rate on hold, despite falling currency
The Reserve Bank of India on Friday kept its policy repo rate unchanged at 5.25%, opting to look past rupee weakness and assess the fallout from rising global energy costs on inflation and growth.
Nearly 80% of 56 economists polled by Reuters expected the RBI's monetary policy committee to hold the repo rate.
A war-driven surge in crude prices and record foreign fund outflows have pushed the rupee down nearly 5% to historic lows since the Gulf conflict erupted late in February, fuelling calls from some analysts for higher rates to defend the currency.
Across the region, policymakers are already moving to shore up their currencies. Indonesia, the Philippines and Sri Lanka have raised interest rates in recent weeks, while South Korea has held fire but signalled a turn is imminent.
Retail inflation in India remains below target and is projected to stay within the central bank's tolerance band in the current fiscal year, giving the RBI headroom to hold interest rates.
India targets retail inflation at 4%, and within a tolerance band of 2-6%.
Economic growth has held up well so far with high-frequency indicators such as industrial output and the purchasing managers index showing steady momentum.
