Indian central bank leaves rates unchanged

Dec. 18, 2012 at 10:04 PM
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MUMBAI, Dec. 18 (UPI) -- India's central bank, citing inflation, left key rates unchanged, keeping the repo rate at 8 percent and the cash reserve ratio for banks at 4.25 percent.

The Indian government, struggling to revive a slowing economy, and the markets, however, had expected the Reserve Bank of India to ease the rates.

India's economic growth has slowed to below 6 percent, while inflation has stubbornly remained above 7 percent.

"On the basis of the current macroeconomic assessment, it has been decided to keep" the CRR unchanged at 4.25 per cent and "keep the policy repo rate (the rate at which the central banks lends to financial institutions) ... at 8 percent," the bank said on its website.

The bank said the global economy has shown some signs of stabilization although the situation remains fragile. It said while activity is picking up in the United States and Britain, near-term prospects in the euro area are still weak and that there is "no clarity as yet" on how the U.S. fiscal cliff might be managed.

"While several emerging and developing economies are gradually returning to higher growth, weak external demand and contagion risks from advanced economies render them vulnerable to further shocks," it said.

On the domestic front, it said there are "some incipient signs of pick-up" though growth remains significantly below its recent trend.

"Also, though consumer price inflation remains stubborn, the pace of moderation in wholesale price inflation has been faster than anticipated. With food and manufacturing prices expected to edge down further, inflationary pressures may ease somewhat in the coming months."

The Economic Times said there are hopes of rates cuts starting next year as price pressures ease and the fiscal scene improves.

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