• India’s central bank holds interest rates

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    MUMBAI: India’s central bank kept interest rates on hold Tuesday, citing the importance of controlling inflation and noting a slowing growth momentum in Asia’s third-largest economy.

    The Reserve Bank of India (RBI) said the benchmark repo rate, the level at which it lends to commercial banks, would remain at 6.75 percent as analysts had expected.

    Out of 40 economists surveyed by Bloomberg News, all but two had predicted that the bank would leave the key rate unchanged.

    “The Indian economy is currently being viewed as a beacon of stability because of the steady disinflation, a modest current account deficit and commitment to fiscal rectitude,” RBI Governor Raghuram Rajan said in a statement.

    “This needs to be maintained so that the foundations of stable and sustainable growth are strengthened,” the RBI chief added, following the bank’s monetary policy review meeting in Mumbai.

    India’s consumer price inflation accelerated to 5.6 percent in December, the fifth month in a row it had gained pace, but remained within the central bank’s target.

    But Rajan, who has made controlling inflation a priority of his tenure, said the bank expected to achieve its target of keeping inflation below 6 percent in January, although the figures have not been released yet.

    The central bank governor said it had opted not to move on rates until it could digest economic reforms expected in the government’s budget, due on February 29.

    “Structural reforms in the forthcoming union budget that boost growth while controlling spending will create more space for monetary policy to support growth,” he said.

    Analyst Arun Singh told Agence France-Presse it would be “difficult” for the RBI to cut rates ahead of the budget.

    “Announcements in the union budget will certainly decide the roadmap for the reserve bank and how much easing it can talk about,” the senior economist at Dun & Bradstreet said.

    RBI chief Rajan lopped 125 basis points off borrowing rates in 2015 in four separate cuts to take the repo rate to its lowest level in four years.

    The bank last cut rates on September 29 with a surprise 50-basis-point reduction.

    Prime Minister Narendra Modi has focused on economic growth since sweeping to power almost two years ago and India has now posted three straight quarters of growth above 7 percent.

    But investors have raised concerns about the pace of promised economic reforms and the government last month cut its forecast for 2015-2016 growth to 7 percent to 7.5 percent, down from 8.1 percent to 8.5 percent previously stated.

    AFP

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