India holds rates in tough inflation fight

RBI leaves the door open for more easing but conditional on inflation coming down to 5% by March 2017

India’s central bank kept its key lending rate unchanged yesterday, leaving the door open for more easing but making that dependent on meeting a challenging inflation target for 2017.

At its last meeting in September, the Reserve Bank of India (RBI) slashed the repo rate by 50 basis points to 6.75 per cent to boost growth.

Yesterday’s hold had been widely expected, after consumer inflation picked up to a four-month high of 5 per cent in October and as emerging markets brace for a hike in US interest rates.

All 45 respondents in a Reuters poll last week expected the RBI to hold the repo rate.

RBI governor Raghuram Rajan noted weak rural and global demand was holding back economic growth, while highlighting pockets of softness in sectors such as construction.

But he said the focus of monetary policy would shift towards achieving consumer inflation of 5 per cent by March 2017, a target analysts say will be challenging, even as he noted risks to inflation remained “slightly to the downside” by the coming March.

The RBI “will use the space for further accommodation,