Canadian Manufacturing

India’s central bank keeps rates steady

by The Canadian Press   

Manufacturing currency Economy India inflation interest rates

The Reserve Bank of India is causing a stir by keeping interest rates the same as it struggles to foster growth amid high inflation

MUMBAI, India—India’s central bank held key interest rates steady as it struggles to foster growth amid high inflation and took steps to curb currency speculation, lifting the rupee from all-time lows Friday.

The Reserve Bank of India (RBI) kept the short-term lending rate, or repo rate, at 8.5 per cent and the reverse repo rate—the rate it pays to banks for deposits—at 7.5 per cent.

The bank also kept the cash reserve ratio for commercial lenders unchanged at 6.0 per cent.

“Downside risks to growth have clearly increased,” the bank said in a statement. “However, it must be emphasized that inflation risks remain high.”


RBI governor Duvvuri Subbarao has declined to say when the bank would start lowering rates.

“I cannot speculate on the timing because I don’t know,” he said.

Growth slipped to a two-year low of 6.9 per cent in the September quarter and industrial  production fell 5.1 per cent in October, its first contraction since June 2009.

But inflation remains above 9 per cent.

The bank’s 13 rate hikes since March 2010 have kept it out of step with many other emerging economies, which have started to ease monetary policy as global growth slows.

The Reserve Bank noted that Brazil, Indonesia, Israel and Thailand have all cut their policy rates, while China cut reserve requirements.

In India, the Reserve Bank has been waging a lonely—and largely ineffective—fight on inflation. The Indian government has failed to back the bank with fiscal consolidation or enact difficult policy changes that could unlock supply-side bottlenecks, pushing down prices and unleashing growth.

India is largely a cash economy, so rate hikes have little direct impact on most consumer demand. But they do hurt investment, which can curtail supply and make inflation even worse.

The central bank is now under enormous pressure from New Delhi and business leaders,


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