India’s central bank held its key interest rate unchanged as broadly expected on Thursday, as efforts continue to return inflation in a sustainable manner to its 4% target.

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC), consisting of three RBI and three external members, held the repo rate the same at 6.50% for the ninth consecutive policy meeting.

A total of four of the six MPC members voted in favour of keeping the rate unchanged, Reuters news agency reports.

The monetary policy stance remained at 'withdrawal of accommodation' to support the MPC's goal of reducing inflation to the target level, with four out of six members voting in favour.

Whereas all 59 economists surveyed in the Reuters poll conducted in late July anticipated that the central bank would maintain current rates.

RBI Governor Shaktikanta Das stressed the importance of maintaining the current monetary policy course, noting that India's food inflation remains “stubbornly” high.

Das added that resilient and steady economic growth in India is enabling the central bank to concentrate on reducing inflation towards its 4% medium-term target, emphasising that price stability is crucial for sustainable growth. 

The MPC last adjusted rates in February 2023, raising the policy rate to 6.50%. In June, the annual retail inflation rate increased for the first time in five months, surpassing 5% due to a surge in food prices.

Despite this, investors remained hopeful that the central bank would adopt a more lenient stance on inflation, influenced by the recent downturn in global market sentiment and increasing expectations that the Federal Reserve will cut interest rates in September.

In addition, global equities and currencies plummeted early this week after the Bank of Japan raised rates to their highest levels since 2008 last week, and fears of a US recession grew due to soft employment numbers.

After the RBI maintained its hawkish policy stance on Thursday, Indian shares continued to decline. The NSE Nifty 50 index fell by 0.64%, and the S&P BSE Sensex dropped by 0.62%. 

Furthermore, the 10-year benchmark bond yield slightly increased to 6.8763% from 6.8678% prior to the policy decision, while India’s Rupee remained almost unchanged at 83.94 against the Dollar.