India keeps interest rates on hold

GMT 09:00 2014 Tuesday ,02 December

Arab Today, arab today India keeps interest rates on hold

Reserve Bank of India (RBI) governor, Raghuram Rajan
New Delhi - AFP

India's central bank kept interest rates unchanged on Tuesday despite growing calls to ease monetary policy, saying a reduction would be "premature".
The Reserve Bank of India (RBI) said the benchmark repo rate -- the level at which it lends to commercial banks -- would remain at a steep 8.0 percent, in line with analysts' expectations.
But it indicated that it could cut rates early next year if inflation continued to slide.
The RBI has been under pressure from government and business leaders to reduce rates, particularly after figures released last month showed economic growth had slowed in the second quarter.
"A change in the monetary policy stance at the current juncture is premature," the bank said in a statement after its regular monetary policy review.
"However, if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year."
Finance Minister Arun Jaitley has indicated he would favour a cut in borrowing costs, held at 8.0 percent since last January, to boost investment and consumer spending.
But RBI governor Raghuram Rajan said he wanted first to be sure that "the process of disinflation is for real".
"We do not intend to flip flop on (our) interest rate stance," he said.
India's central bank has said it wants to "break the back of inflation", which the country has battled for many years, before it moves to lower steep interest rates seen as keeping economic growth in low gear.
Rises in prices of food especially have caused huge hardship for India's 1.2 billion population, of which nearly a quarter live in severe poverty, according to the World Bank.
Consumer inflation eased to 5.52 percent in October, while wholesale inflation hit a five-year low of 1.77 percent as fuel and food prices fell, firing hopes the bank could finally start cutting rates to spur stumbling economic growth.
India said Friday the economy grew 5.3 percent in July-September year-on-year, significantly slower than the previous three months, adding to the pressure on the RBI.
The central bank has forecast growth of 5.5 percent this year, slightly below the government's target of 5.8 percent.
Economists say India needs to grow by at least 8.0-9.0 percent to create jobs for a ballooning youth population.
The latest news pushed yields on the government's 10-year benchmark bonds down by nearly 8 basis points to below 8.00 percent on market expectations of a rate cut early next year.
India's rupee strengthened slightly against the US dollar to 61.92 from 61.97 before the announcement.
The failure to cut rates, however, pushed the stock market down 0.46 percent to 28,427.39.


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