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India keeps interest rate unchanged

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The Reserve Bank of India PHOTO:AFP

India’s central bank on Thursday kept interest rates at a seven-year-low despite inflation concerns and a recent spurt in economic growth.

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.

Analysts had predicted the central bank would not move despite rising global oil prices.

Monetary authorities are also anxious not to cause jitters after a $2 billion fraud scandal at the country’s second largest state lender Punjab National Bank (PNB).

The central bank’s policy report said inflation was expected to firm up before moderating for the financial year 2018-19. It also expressed concerns over rising oil prices.

It said “volatile” international prices in recent weeks have “adversely impacted the outlook for crude oil prices”.

India imports nearly 80 percent of its oil. Currently, India’s retail inflation has slowed to 4.44 percent while the GDP figures for the quarter to December 31 showed signs of revival with an annual rate of 7.2 percent growth.

But inflation may rise to 5.3 percent in the June quarter well above the RBI’s target of 4 percent, Bloomberg reported.

India’s economy has suffered a downturn blamed on a shock cash ban that withdrew most of India’s high-value banknotes from circulation, and the launch of a new nationwide goods and services tax.

Corporate and banking scandals could peg back growth and cloud the investment climate if regulations are tightened, analysts at Goldman Sachs said, according to Bloomberg.

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

“There are now clearer signs of revival in investment activity as reflected in the sustained expansion in capital goods production and still rising imports,” the central bank noted.

Five committee members voted in favour of withholding interest rate at 6.00 percent, the RBI said, adding that a demand for hike by 25 basis points was made by the remaining member.


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