India’s central bank keeps interest rates at a seven-year low


India’s central bank kept interest rates at a seven-year low on Wednesday, citing concerns over accelerating inflation and rising oil prices as a reason not to cut them.

The Reserve Bank of India (RBI) said the benchmark repo rate — the level at which it lends to commercial banks — would remain unchanged at 6.0 percent.

The decision was in line with analysts’ expectations.

“The MPC (monetary policy committee) notes that the inflation outlook is clouded by several uncertainties on the upside,” the RBI said in a statement.

“Therefore, need for vigilance around the evolving inflation scenario in the coming months,” it added.

It referred to “a pick-up in global growth” and rising commodity and oil prices as likely to contribute to heightened inflation.

The bank also said the Indian government’s recent announcement of financial support for farmers could be a inflationary factor.

Rising food and oil prices spurred India’s retail inflation to a 17-month high of 5.21 percent in December, significantly above the RBI’s target of around four percent.

India is a net importer of oil and was affected by the jump in world crude prices of around 15 percent last year.

Analysts expect inflation to rise further after the government announcement in the budget earlier this month that it would raise minimum support prices for agricultural produce.

India’s economic growth slumped to an annualised 5.7 percent in the first quarter of the current financial year — the lowest in three years.

The introduction of a new national goods and services tax last year and a controversial 2016 move to withdraw all high-value banknotes from circulation were blamed for the dip.

But the government insists the economy has come out of the downturn and will grow by 7.2-7.5 percent in the second half of the current fiscal year and achieve growth of eight percent “soon”.

The RBI last cut the main interest rate in August, reducing it by 25 basis points to 6.0 per cent — the lowest level since September 2010.


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