India Central Bank Retains Key Rates

India’s central bank left its key interest rates unchanged on Wednesday, defying calls for a reduction, as inflation moved closer to 4 percent.

At the fifth bi-monthly monetary policy session, the Monetary Policy Committee of the Reserve Bank of India decided to maintain the repo rate at 6.00 percent and the reverse repo rate at 5.75 percent.

The bank had lowered the rate by 25 basis points at its meeting in August.

Five members including Governor Urjit Patel voted in favor of the monetary policy decision, while Ravindra Dholakia sought a quarter point reduction.

The projection for real GVA growth for 2017-18 was maintained at 6.7 percent.

The MPC decided to continue with the neutral stance and watch the incoming data carefully. The policy-making body will also remain committed to keeping headline inflation close to 4 percent on a durable basis.

Inflation is estimated to range between 4.3 percent and 4.7 percent during October to March compared to 4.0-4.5 percent projected in October.

Consumer price inflation had accelerated to 3.6 percent in October from 3.3 percent in September.

With core price pressures building, Shilan Shah, an economist at Capital Economics, said the debate may shift towards tighter policy later in 2018.

Recently, Prime Minister Narendra Modi’s advisers sought interest rate reduction and blamed the RBI for overestimating inflation.

The RBI policymakers observed that food and fuel inflation edged up in November, rising input cost and decrease in government revenue carry risks for inflation.

Increase in capital raised from the primary markets when deployed in new projects would add to demand and boost the growth potential, the bank noted.

The improvement in the ease of doing business ranking should help sustain foreign direct investment in the economy. Further, public sector banks are recapitalized which enhance allocative efficiency.

All these significant developments would augur growth prospects, going forward, the bank said.

Official data released late November showed that India’s economic growth regained momentum in the three months to September as the dust settled after the roll out of the Goods and Sales Tax that led to the slowest expansion in three years in the previous quarter.

Gross domestic product grew 6.3 percent year-on-year following 5.7 percent increase in the three months to June.

In November, Moody’s Investors Service raised the sovereign ratings of India for the first time since 2004, citing economic and institutional…

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