india\s central bank keeps interest rates on hold
Last Updated : GMT 23:41:59
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Arab Today, arab today

India\'s central bank keeps interest rates on hold

Arab Today, arab today

Arab Today, arab today India\'s central bank keeps interest rates on hold

New Delhi - AFP

India\'s central bank on Friday kept interest rates on hold as expected and raised the possibility of future cuts, as the country fights an economic slowdown, a weakening rupee and high inflation. The Reserve Bank of India cheered business leaders and economists by making no changes to its repo rate at which it lends to commercial banks or the reverse repo rate that it pays banks for deposits. They remained at 8.50 percent and 7.50 percent respectively. The RBI has raised interest rates 13 times since March 2010, angering business leaders who complain it has hit economic growth and investor confidence in the South Asian giant. Governor Duvvuri Subbarao had indicated at the bank\'s mid-quarter monetary policy meeting in October that the likelihood of another rise was \"relatively low\". The bank said in a statement on its website on Friday that in view of a slight dip in inflation, \"further rate hikes might not be warranted\" in the months ahead. \"From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth,\" it added. Subbarao told reporters that he could not speculate on when cuts might come. The chairman of the Prime Minister\'s Economic Advisory Council, C. Rangarajan, welcomed the pause, but told CNBC TV 18: \"Further action on the part of the reserve bank all depends on how inflation turns out.\" Finance Minister Pranab Mukherjee also applauded the move and said it was necessary \"to improve business sentiment and recover the growth momentum in the remaining months\" of the current financial year. Subbarao has maintained the 13 hikes were necessary to combat high inflation, which has been running at near double figures for months, even if it means growth takes a short-term hit. But he has been urged to change tack. India\'s government expects the economy to grow at a rate of 7.5 percent this year, down from its earlier estimate of 9.0 percent. Private economists believe growth will be nearer 7.0 percent or lower. The Confederation of Indian Industry (CII) said the bank\'s guidance was \"reassuring\" but said urgent action was still required. \"RBI could have used the current opportunity to send strong signals that growth will not be sacrificed further even while inflation is being controlled,\" said CII director-general Chandrajit Banerjee. Headline annual inflation has dropped to a year\'s low of 9.11 percent in November from 9.73 percent in October but at the same time, the government revised its September inflation figures from 9.72 percent to 10.0 percent. Fears of a slowdown increased after the latest industrial output figures showed 5.1 percent shrinkage in September, including in key sectors like mining, manufacturing and capital goods. The RBI called the decline in industrial activity \"a matter of serious concern\". Strong growth is seen as essential to help improve the lives of India\'s 1.2 billion people, 75 percent of whom live on less than $2 a day. High inflation has upped the pressure on a government already hit by a series of high-profile corruption scandals plus charges of ineffectiveness and policy paralysis. Import costs have increased because of the depreciating rupee, which has fallen to record lows against the US dollar, as investors seek safe haven due to uncertainty caused by the eurozone debt crisis. The rupee rebounded on Friday after the RBI stepped in, announcing measures to prevent excessive speculation in the currency. Food inflation also eased in the week ending December 3 to a four-year low of 4.35 percent, down from 6.6 percent the previous week. The government has predicted it will be below 3.0 percent within a month.

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