India's central bank keeps rates steady, warns of risks

India's central bank kept its benchmark interest rates unchanged on Monday, after three successive cuts, citing inflationary concerns and a weak rupee in the face of a global economic slowdown. After meeting in the financial capital Mumbai, the Reserve Bank of India (RBI) said the benchmark repo rate, at which it lends to commercial banks, would be on hold at 7.25 percent, as expected by most economists. The cash reserve ratio -- the percentage of deposits banks must keep with the central bank -- was also kept unchanged at 4.0 percent. "Global economic activity has slowed and risks remain elevated," said RBI governor Duvvuri Subbarao, explaining the decision. Subbarao said there were pressures from the impact of the "rupee depreciation, increases in fuel prices and imbalances relating to food (prices)"."It is only the durable receding of inflation that will open up the space for monetary policy to continue to address risks to growth," the governor said in the statement released on the RBI website. The RBI's decision to keep rates unchanged had been forecast by economists due to the weakening rupee, which hit a record low of 58.98 against the dollar last week. A cut in interest rates would lead to an even weaker rupee, push up the cost of imports and widen the current account deficit, which hit a record 6.7 percent of gross domestic product in the last quarter of 2012. Subbarao said while steps have been taken to contain the current account deficit, the bank needs to be "vigilant" about global uncertainty, rapid shifts in risk perceptions and the impact on capital inflows. "The RBI has taken a cautious stance and is non-committal about what it could do in its next policy in July," said Siddhartha Sanyal, chief India economist with Barclays Capital. Economist Shubhada Rao, with private Yes Bank, said the bank's tone remains "guarded"."The door is open for a 25 basis points cut when the RBI meets next," she told AFP, adding that a lot would depend on the currency movements and the monsoon's impact on food prices. The RBI also expressed concern over inflation, although this cooled to a more than three-year low of 4.7 percent year-on-year in May, according to data last week. Business leaders however want the RBI to lower borrowing costs further to help kick-start the economy, which has been growing at a decade low of 5.0 percent.m India's manufacturing activity also dropped to a 50-month low in May, fuelling further concerns about the strength of Asia's third largest economy. The Congress party government, led by Prime Minister Manmohan Singh, has been battered by a spate of corruption scandals and is keen to revive economic growth before facing voters in general elections due in 2014.