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India keeps benchmark interest rate unchanged

October 30, 2012 AFP
India's central bank kept its benchmark interest rate on hold on Tuesday because of inflationary pressures, despite mounting calls for a cut to boost the slowing economy.

The Reserve Bank of India kept the key repo rate -- at which it lends to commercial banks -- at 8.0 per cent, as had widely been predicted by economists.

"It is critical that even as the monetary policy stance shifts further towards addressing growth risks, the objective of containing inflation and anchoring inflation expectations is not de-emphasised," RBI governor Duvvuri Subbarao said.

The bank did move to increase liquidity in the banking sector by cutting its cash reserve ratio -- the amount that banks have to keep aside as deposits -- by 25 basis points to 4.25 per cent.

But the lack of a rates cut was likely to disappoint the government and business leaders, who have been calling for a shot in the arm to the Indian economy, which grew at just 5.5 per cent in the quarter to June.

The government on Monday sent a strong signal to the RBI to take note of its fiscal consolidation plans after a slew of economic reforms, which included opening up foreign investment in retail, aviation and insurance.

But the central bank has kept rates on hold since April -- when it cut them for the first time in three years -- insisting inflation must recede and that the government needs to take steps to curb its gaping deficit.