The RBI is preserving rates of interest steady and downgrading the GDP development forecast for the 2025 monetary 12 months

Signage for the Reserve Bank of India (RBI) in Mumbai, India, on Friday, April 5, 2024.

Dhiraj Singh | Bloomberg | Getty Images

India's central bank was expected to keep interest rates unchanged at 6.50% on Friday as it struggles to contain rising inflation without hurting growth in Asia's third-largest economy.

The decision was in line with economists' expectations in a Reuters poll, as consumer price inflation in India rose to a 14-month high of 6.21% in October, well above the central bank's target of 4% and also above the tolerance limit of 6% % lay %.

Reserve Bank of India Governor Shaktikanta Das said the central bank had revised down India's GDP growth outlook for fiscal 2025 to 6.6% – the RBI had forecast 7.2% growth in October – adding that the slowdown in the domestic economy has “bottomed out” in the 2025 September quarter.

The central bank also announced a 50 basis point cut in banks' cash reserve ratio to 4.0% to bolster liquidity in the economy.

The RBI has kept interest rates stable since February last year, but a sharper-than-expected slowdown in India's economic growth has made the central bank's task more difficult.

In the July-September period, India's economy grew 5.4% from a year earlier, falling well short of the 6.5% expected by economists polled by Reuters and recording its slowest pace in nearly two years.

The slowdown has raised fears that the RBI's hawkish policies could cause the economy to miss its forecast of 7.2% growth for the year to March 2025.

Both Finance Minister Nirmala Sitharaman and Commerce Minister Piyush Goyal have reportedly called for lower borrowing costs to boost credit demand and support a slowing economy.

“At a time when we want the industry to scale up and expand its capacity, bank interest rates need to be far more affordable,” the finance minister said at an event in Mumbai last month.

However, RBI chief Shaktikanta Das has ruled out an immediate rate cut even as the central bank shifted its monetary policy stance from a more restrictive “withdrawal of relief” to “neutral” in the October meeting.

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Das, whose second term at the helm of the central bank ends later this month, had said in October that an immediate rate cut could be “very premature” and “very, very risky” and that he was in no hurry to join the global central bank join central banks in easing.

LSEG data showed the Indian rupee fell to a record low against the US dollar earlier this week and any monetary easing measures would likely put further pressure on the currency and likely trigger capital outflows.

Following Friday's announcement, the rupee remained little changed at 84.666 against the greenback. The Nifty 50 index pared earlier losses and traded almost unchanged.

The benchmark index has risen slightly since the GDP release last Friday and stands at 13.7% year-to-date. By comparison, the MSCI Asia ex Japan index – which invests nearly 23% of its funds in India – is down about 12% so far this year.

Indian bonds have rallied in recent days, with the benchmark 10-year yield falling to 6.677% on Thursday, the lowest since February 2022, according to LSEG data.

The 10-year yield rose 3.1 basis points to 6.711% following the RBI decision.

—CNBC's Amala Balakrishner contributed to this report.