MUMBAI: The Reserve Bank of India held its key lending rate steady on Thursday as widely expected, as inflation concerns resurfaced following higher-than-usual seasonal spikes in food prices in recent weeks.

The monetary policy committee (MPC), which has three members from the central bank and three external members, kept the repo rate unchanged at 6.50% in an unanimous decision.

It was the third consecutive time that the committee decided to maintain rates.

The central bank, however, tightened liquidity conditions by temporarily raising the cash buffer that banks are required to hold.

India rate panel to dial up hawkishness even as it holds policy steady

India has raised rates by 250 basis points (bps) since May 2022 in a bid to cool surging prices.

Food price spikes in India, typical at the onset of the monsoon, drove up headline inflation in June, snapping a four-month downward trend.

Analysts expect inflation to have reached 6.4% in July, moving out of the RBI’s 2%-6% comfort band.

The Indian rupee was marginally weaker versus the US dollar at 82.84 as of 10:17 a.m. IST, after the RBI left the policy rate unchanged. The rupee forward premiums dropped.

The RBI maintained its policy stance of “withdrawal of accommodation” to ensure inflation progressively aligns with the committee’s target while remaining supportive of economic growth, RBI Governor Shaktikanta Das said.

Five of six committee members voted in favour of the stance.

The benchmark 2033 bond yield rose briefly after the liquidity measure to 7.1861%, but eased immediately as the governor said the measure was temporary.