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India central bank holds rates amid economic slowdown

The Reserve Bank of India (RBI) decision to hold interest rates at a seven-year-low is likely to disappoint the country’s government which had sought a cut to help boost flagging growth

India’s central bank held interest rates at a seven-year-low on Wednesday in line with analysts’ expectations, as Asia’s third largest economy experiences a slowdown following recent high-profile reforms.

The Reserve Bank of India (RBI) said the benchmark repo rate — the level at which it lends to commercial banks — would remain unchanged at 6.0 percent.

“The MPC has decided to keep the policy rate unchanged and decided to keep policy stance neutral and monitor incoming data closely,” RBI said in a statement following a meeting of its Monetary Policy Committee in Mumbai.

The decision is likely to disappoint the Indian government which had sought a cut to help boost flagging growth, according to local media reports.

India was the fastest growing major economy in the world last year, clocking 7.1 percent during the first quarter.

But since then Prime Minister Narendra Modi has rolled out two large economic reforms — the introduction of a goods and services tax (GST), and the snap withdrawal of most of India’s high-value banknotes from circulation.

Economic growth slumped to 5.7 percent for the first quarter of the current financial year with analysts blaming the controversial note ban and citing the transition to GST.

The new tax aims to transform the nation of 1.3 billion people and its $2 trillion economy into a single market.

Experts say it is likely to spur economic growth in the long run but has posed an initial shock to the economy as businesses adjust.

“Teething problems linked to the GST… may get resolved relatively soon, allowing growth to accelerate,” the RBI said in its statement.

The bank said it was committed to keeping inflation close to four percent and cited a recent spike as a reason to sit tight on rates.

The RBI cut the main interest rate by 25 basis points to 6.0 per cent in August, the lowest level since September 2010.

A survey by Bloomberg News this week found that economists expect the rate to remain unchanged for the rest of 2017.

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