MUMBAI: India’s central bank kept its benchmark interest rates unchanged on Monday after three successive cuts this year, due to inflationary concerns, weak global factors and a falling rupee. After meeting in the financial capital Mumbai, the Reserve Bank of India (RBI) said the benchmark repo rate, at which it lends to commercial banks, would be on hold at 7.25 per cent, as expected by most economists.
The cash reserve ratio – the percentage of deposits banks must keep with the central bank – was also kept unchanged at 4.0 per cent.
The RBI’s decision to keep rates unchanged had been forecast by economists due to a weakening rupee, which hit a record low of 58.98 against the dollar last week.
A cut in interest rates would lead to an even weaker rupee, push up the cost of imports and widen the current account deficit, which hit a record 6.7 per cent of gross domestic product in the last quarter of 2012.
The RBI also expressed concern over stubborn headline inflation, although this cooled to a more than three-year low of 4.7 per cent year-on-year in May, according to data last week.
Business leaders however want the RBI to lower borrowing costs further to help kick-start the economy, which has been growing at a decade low of 5.0 per cent.
India’s manufacturing activity also dropped to a 50-month low in May, fuelling further growth concerns about the strength of Asia’s third largest economy.
The Congress party government, led by Prime Minister Manmohan Singh, has been battered by a spate of corruption scandals and is keen to revive economic growth before facing voters in general elections due in 2014.