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India Maintains Interest Rates; Cuts Growth Outlook

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India's central bank left its key interest rates unchanged on Wednesday at the lowest level since 2010 as it expects upside risks to inflation to prevail, and downgraded the growth forecast.

In its fourth bi-monthly monetary policy session, the Monetary Policy Committee of the Reserve Bank of India decided to maintain the repo rate at 6.00 percent and the reverse repo rate at 5.75 percent.

The bank had lowered the rate by 25 basis points at the previous meeting in August.

Five MPC members including Governor Urjit Patel voted in favor of the decision, while Ravindra Dholakia sought a policy rate reduction of at least 25 basis points.

The bank reduced the statutory liquidity ratio by 50 basis points to 19.50 percent.

The RBI downgraded the projection for real GVA growth for 2017-18 to 6.7 percent from 7.3 percent, with risks evenly balanced.

In August, headline inflation was projected at 3 percent in the second quarter and 4.0-4.5 percent in the second half of 2017-18. Actual inflation outcomes so far have been broadly in line with projections, the bank said.

Some price revisions pending the Goods and Services Tax implementation have been taking place, the RBI said. Moreover, international crude prices started rising from early July, and firmed up further in September.

Considering all these factors, the RBI forecast inflation to rise from its current level and range between 4.2-4.6 percent in the second half of this year. The bank said it remains committed to keep inflation close to 4 percent on a durable basis.

The MPC reiterated that it is imperative to reinvigorate investment activity which, in turn, would revive the demand for bank credit by industry.

On growth projection, RBI said the implementation of the GST so far also appears to have had an adverse impact, rendering prospects for the manufacturing sector uncertain in the short term.

As the bank acknowledged the growing upside risks to the inflation outlook, a renewed policy loosening is unlikely, Shilan Shah, an economist at Capital Economics, said. The economist expects the repo rate to stay on hold at 6.00 percent over the next few months.

by RTT Staff Writer

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