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RBI keeps interest rates at 6.25 percent

RBI keeps interest rates at 6.25 percent

India’s central bank held interest rates in line with analysts’ expectations on Wednesday, rebuffing the finance ministry’s desire for a cut after India’s growth slowed.

The Reserve Bank of India (RBI) said the benchmark repo rate — the level at which it lends to commercial banks — would remain at 6.25 percent.

It was the fourth consecutive monetary policy committee (MPC) meeting where rates have been left unchanged.

Forty-eight out of 50 economists surveyed by Bloomberg News had predicted that the rate would be held despite India’s growth slowing to 6.1 percent in the recently ended fourth quarter.

The fall in GDP, reported last month, came after the government’s shock move in November to ban most of the country’s currency in circulation.

A rate cut encourages consumers to spend, usually causing a spur in growth, and Indian Finance Minister Arun Jaitley called for a reduction in the rate this week owing to a sharp fall in inflation.

Consumer prices rose at just 2.99 percent in April from a year earlier, a record low, but the RBI — headed by governor Urjit Patel — said it needed to wait and see whether those levels would remain or spike before moving on rates.

“Premature action at this stage risks disruptive policy reversals later and the loss of credibility. Accordingly, the MPC decided to keep the policy rate unchanged with a neutral stance and remain watchful of incoming data,” it said in a statement.

The central bank last cut the interest rate in October when it was reduced by 25 basis points to 6.25 percent, the lowest level since November 2010.

That cut came shortly before Prime Minister Narendra Modi stunned the country by removing all 500 (around $7.50) and 1,000 rupee notes from circulation.

He defended it as a necessary strike against corruption but critics say it hurt some of the poorest in society while analysts insist the full impact of the note ban is still not known.

Indian businesses are gearing up for the introduction on July 1 of a new national goods and services tax which experts say is likely to spur economic growth.

The RBI said GST “is not expected to have a material impact on overall inflation”.

–AFP