Key facts
- The Reserve Bank of India maintained its benchmark repo rate at 5.25%.
- India's GDP growth forecast was lowered to 6.6%.
- India's inflation projection was raised to 5.1%.
- Capital gains tax for foreign bondholders in India has been scrapped.
- The Reserve Bank of India denied selling $12 billion in gold to support the rupee.
- India's foreign exchange reserves increased by over $900 million to $682.3 billion.
- Foreign currency assets in India rose by $3.116 billion to $546.148 billion.
- India's gold reserves saw a decline.
- The Indian rupee strengthened by 0.9% against the US dollar, closing at 94.9450.
- Forward premiums fell to their lowest level this financial year.
The Reserve Bank of India (RBI) has decided to hold its benchmark repo rate steady at 5.25%, navigating a complex economic landscape. This decision comes amidst concerns over a depreciating rupee, rising inflation, and the need to support economic growth. The central bank lowered its Gross Domestic Product (GDP) growth forecast for the fiscal year to 6.6%, down from previous projections. Concurrently, the inflation projection was revised upwards to 5.1%.
To bolster the Indian rupee, which has been under pressure due to global factors including Middle East tensions and rising oil prices, the RBI is introducing several measures. These include the elimination of capital gains tax for foreign portfolio investors holding Indian bonds. The central bank has also officially denied recent reports suggesting it had sold $12 billion worth of gold reserves to prop up the currency. This denial is supported by official data indicating an increase in the RBI's gold holdings.
In terms of foreign exchange reserves, India saw an increase of over $900 million for the week ending May 29, bringing the total reserves to $682.3 billion. A significant component, foreign currency assets, rose by $3.116 billion to $546.148 billion. However, the country's gold reserves experienced a decline during the same period.
Globally, the US dollar has slipped from a two-month high as optimism for a ceasefire in the Middle East grew. Strong US services inflation data has reinforced expectations that the Federal Reserve will maintain current interest rates. Meanwhile, the Bank of Japan has signaled a potential interest rate hike in June. The Indian rupee itself saw a notable strengthening of 0.9% against the US dollar, closing at 94.9450, marking its largest daily gain since April 2. Forward premiums also reached their lowest point for the current financial year.