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India holds interest rates, despite slowing growth

June 18, 2012

MUMBAI: India’s central bank kept its main interest rates unchanged today, despite facing pressure for a cut to spur borrowing and investment in the face of a worrying economic slowdown.

The Reserve Bank of India (RBI) said the benchmark repo rate, at which it lends to commercial banks, would remain at 8.0%, while the reverse repo rate, which it pays banks for deposits, would stay at 7.0%.

The cash reserve ratio – the sum commercial banks keep on deposit – was also unchanged at 4.75%.

The move went against most economists’ expectations of a further easing in rates by the RBI following its first reduction in three years in April, amid a host of economic problems for the once-booming Asian giant.

“While growth in 2011-12 has moderated significantly, headline inflation remains above levels… consistent with sustainable growth,” the RBI said in a statement.

The bank has been under pressure to help revive growth after the economy grew just 5.3% in January to March, its slowest quarterly expansion in nine years.

But hopes of an aggressive cut by the policy-makers in Mumbai were tempered by data last week showing a marginal rise in wholesale price inflation in May to 7.55% on an annual basis.

India cut its main interest rates by a higher-than-expected 50 basis points in April in a bid to spur faltering growth, after keeping them on hold since late last year.

Rates were previously hiked 13 times from March 2010 in one of the most aggressive monetary policy tightening drives of any major economy.



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