India interest rates on hold as growth slows

(Mumbai) AFP: India’s central bank kept interest rates unchanged yesterday after Asia’s third-largest economy slowed ahead of elections next year.

The Reserve Bank of India (RBI) said the benchmark repo rate (the level at which it lends to commercial banks) would remain at 6.50 percent.

It was the second meeting in a row that the bank has kept borrowing rates stable following two rises this year.

The decision was “consistent with the stance of calibrated tightening of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent”, the bank said. India last week reported slowing economic growth, expanding 7.1 percent in the July-to-september quarter, down from 8.2 percent in the previous period.

Analysts say India needs to regularly record growth of at least eight percent to generate employment for the millions entering the workforce each year.

Inflation remains tame however, easing to 3.31 percent in October, below the RBI’S 4-percent target band.

The slowdown in growth was on the back of a liquidity crunch in the banking system, linked to problems in the shadow banking sector, hitting investment.

Another hike in interest rates could have exacerbated the crunch ahead of general elections expected in April or May next year. Sujan Hajra, economist at Mumbai-based Anand Rathi Securities, told AFP that he expected rates to be kept on hold until the vote.