India keeps interest rates on hold

[MUMBAI] India's central bank kept interest rates unchanged on Tuesday, three weeks after announcing an unscheduled cut, signalling that it wants to wait for the government's annual budget before easing further.

After a meeting in the financial capital Mumbai, the Reserve Bank of India (RBI) said the benchmark repo rate, at which it lends to commercial banks, would stay at 7.75 per cent.

RBI governor Raghuram Rajan said the bank was waiting for further signs of slowing inflation along with the government's budget due to be delivered on February 28.

"We are looking for further cues on progress of disinflation. And on the fiscal front we have the budget coming up. So those are the important developments we would pay attention to," Rajan told reporters after the announcement.

Most economists predicted Tuesday's rate would remain on hold after the RBI surprised investors with a 25 basis points cut on January 15, partly citing cooling inflation, in the first reduction in 20 months.

The RBI has been under pressure from government and business leaders to reduce rates to increase lending and help kickstart Asia's third-largest economy, but Rajan's priority has been to bring inflation under control.

Consumer prices, which impact severely on tens of millions of India's poor, rose five per cent in December, well within the RBI's target of a maximum six percent by next January.

The RBI, which on Tuesday also kept the cash reserve ratio unchanged at 4.0 per cent, said inflation is likely to remain on target by January.

Prime Minister Narendra Modi, who stormed to power in May last year, pledged to revive the flagging economy by attracting more foreign investors and bolstering manufacturing.

Modi vowed last month to banish India's reputation as a tough place to do business, telling US President Barack Obama during a visit to New Delhi that he would ease off on taxes and encourage innovation.

AFP