In­dia’s cen­tral bank keeps in­ter­est rates un­changed

The China Post - - WORLD BUSINESS -

In­dia’s cen­tral bank kept its key in­ter­est rate on hold Tues­day as an­a­lysts had ex­pected, re­sist­ing gov­ern­ment pres­sure for a fourth cut of the year.

The Re­serve Bank of In­dia (RBI) said the bench­mark repo rate — the level at which it lends to com­mer­cial banks — would re­main at 7.25 per­cent.

“It is pru­dent to keep the pol­icy rate un­changed at the cur­rent junc­ture while main­tain­ing the ac­com­moda­tive stance of mon­e­tary pol­icy,” RBI gover­nor Raghu­ram Ra­jan said in a state­ment fol­low­ing the bank’s mon­e­tary pol­icy re­view meet­ing in Mum­bai.

Ra­jan had al­ready snipped rates three times this year to aid In­dia’s econ­omy, which at 7.5 per­cent growth out­per­formed China’s for the first three months of 2015.

Prime Min­is­ter Naren­dra Modi’s busi­ness-friendly gov­ern­ment was keen for a fur­ther cut as it seeks to quicken the pace of growth in Asia’s third-largest econ­omy.

But Ra­jan has in­sisted that any fur­ther re­duc­tion would have to wait un­til the in­fla­tion­ary ef­fect of an­nual mon­soon rains is known in a cou­ple of months time.

Heavy mon­soon rains are vi­tal for crops and a dry sea­son can re­duce farm out­put, rais­ing food prices which can be crip­pling for In­dia’s tens of mil­lions of poor.

“Sig­nif­i­cant un­cer­tainty will be re­solved in the com­ing months, in­clud­ing the likely per­sis­tence of re­cent in­fla­tion­ary pres­sures, the full mon­soon out­turn, as well as pos­si­ble Fed­eral Re­serve ac­tions,” Ra­jan said.

The bank left room for a cut at its next meet­ing on Sept. 29.

A sur­vey of 42 econ­o­mists by Bloomberg had over­whelm­ingly pre­dicted Ra­jan would hold rates on in­fla­tion­ary con­cerns.

The gover­nor has made con­trol­ling in­fla­tion a pri­or­ity, set­ting a tar­get of bring­ing it con­sis­tently be­low 6 per­cent by next Jan­uary and to 4 per­cent for the 2016/17 fi­nan­cial year.

In­fla­tion in­creased 5.40 per­cent in June, faster than an­a­lysts’ ex- pec­ta­tions, with food prices ris­ing dur­ing the mon­soon.

Modi’s gov­ern­ment has made re­viv­ing In­dia’s econ­omy a pri­or­ity since com­ing to power last May, in­tro­duc­ing re­forms aimed at boost­ing de­mand and in­creas­ing in­vest­ment.

Af­ter cuts in Jan­uary and March, the RBI kept rates un­changed in April, cit­ing in­fla­tion con­cerns and a fail­ure of most com­mer­cial banks to on pass lower loan rates to cus­tomers. In June it lopped off a fur­ther 25 ba­sis points.

Pres­sure on Ra­jan to an­nounce another cut was eased by data re­leased Mon­day that showed fac­tory out­put climbed to a six-month high in July on strong de­mand.

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