New Delhi: India’s central bank left its benchmark interest rate unchanged as expected, with policymakers worrying that high food prices will continue to keep inflation above its target.

Four of the six Monetary Policy Committee (MPC) members voted yesterday to keep the benchmark repurchase rate at 6.5%, while the other two called for a quarter-point cut.

Almost all economists surveyed by Bloomberg predicted the rate would stay on hold for a ninth policy meeting.

The committee, whose four-year term ends in October, also opted to retain its relatively hawkish policy stance of “withdrawal of accommodation”.

The MPC “has to remain vigilant to prevent spillovers or second-round effects from persistent food inflation and preserve the gains made so far in monetary-policy credibility,” governor Shaktikanta Das said in a live-streamed address from Mumbai.

Inflation climbed to 5.08% in June, more than one percentage point above the Reserve Bank of India’s 4% target. Most of the pressure is coming from rising food prices, which make up almost half of the consumer price basket, and have complicated the timing of rate cuts. Das has previously warned against easing policy too early.

There’s growing debate about whether it’s appropriate for the RBI to target an inflation measure that includes food since interest rates won’t have a direct effect on their prices.

Das appeared to dismiss those calls, saying in a statement yesterday that because food has a weight of 46% in the consumer price index basket, “food inflation pressures cannot be ignored”.

He added that “the public at large understands inflation more in terms of food inflation than the other components of headline inflation,” implying food costs have an influence on inflation expectations.

The RBI can’t be complacent just because the core measure, which excludes food and energy costs, has slowed considerably, Das said.

“The Reserve Bank of India’s decision to maintain the status quo on the policy rate and keep its hawkish stance ignores the heaping evidence in favour of a need for monetary easing.

As the central bank continues to impose an unwarranted growth sacrifice on the economy, the risk of a deeper slowdown which takes longer to reverse is on the rise,” Bloomberg Economics’ Abhishek Gupta said.

Economists have pushed out their expectations for rate cuts to later in the year, and predict the RBI will only move after the US Federal Reserve (Fed) pivots.

Fears of a recession in the United States have fuelled speculation the Fed may be preparing to ease, possibly as soon as September.

Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, said the RBI will likely shift its policy stance in October before cutting rates in December.

“With growth remaining robust, the MPC still has room to hold on to policy stance to get confirmation on the disinflationary trend,” she said.

 - Bloomberg