The FINANCIAL — India’s central bank kept its key interest rate unchanged at a four-year low on December 1, after delivering four cuts since January to boost growth in Asia’s third-largest economy, according to Nasdaq.
At his 14th rate-setting meeting since taking over the top job at the bank in September 2013, Reserve Bank of India Governor Raghuram Rajan left the main repurchase rate unchanged at 6.75%, citing a rise in inflation.
All 11 economists polled by The Wall Street Journal had predicted that India’s central bank wouldn’t budge. Those interviewed also agreed that Gov. Rajan would refrain from changing the policy stance until he has ensured inflation is in check and an expected increase in U.S. interest rates passes through without causing too much turmoil in emerging markets.
India’s economy is sending contradicting signals, which represent a dilemma for the country’s central bank.
On the one hand, the 7.4% GDP growth the country recorded in the fiscal second quarter makes it the fastest-growing large economy in the world. On the other, weak investment data, and mixed performances in the agriculture and service sector suggest the country could still benefit from lower interest rates.
Gov. Rajan said on December 1 India’s central bank has front-loaded its policy action in response to weak domestic and global demand, which were holding back investment. But now, with prices on the increase, the RBI has switched to wait- and-see mode.
“Inflation has turned up as anticipated, and is expected to rise further until December before plateauing,” Gov. Rajan wrote in a statement. “The uptick of…inflation…for two months in succession warrants vigilance.”
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