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India maintains rates as inflation approaches central bank target

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The central bank of India kept interest rates unchanged as it recovered the limits of space inflation to stimulate an economy struggling to recover from disruptive government policies.

The benchmark repurchase rate was left at 6 percent, the Reserve Bank of India said in a statement in Mumbai on Wednesday. Five of the six members of the monetary policy committee voted in favor of the measure, which was predicted by 42 out of 48 economists in a Bloomberg survey, while the rest saw a cut to 5.75 percent.

The decision reflects RBI's concern about price pressures approaching its medium-term objective. Supply chains broke down and growth remained below potential after the launch of a new consumption tax and the withdrawal of Prime Minister Narendra Modi from high-value notes, forcing his advisers to reduce borrowing costs even when global central banks harden.

"The MPC remains committed to maintaining headline inflation close to 4 percent on a durable basis," the statement said. He noted that input prices increased in November, input costs increased and risks to government revenues could trigger inflation, as could any global financial instability.

Key Statement Points:

  • The inflation forecast was raised to 4.3 percent to 4.7 percent for October-March from 4.2 percent to 4.6 percent.
  • Gross value added – key growth measure – remained at 6.7 percent until March 31
  • RBI said that commercial lenders can improve the transmission of previous rate cuts on outstanding loans

The main stock index was down 0.4 percent after the decision. The yield on the 10-year sovereign bond rose one basis point to 7.07 percent and the rupee was traded 0.1 percent to 64.4175 per dollar. Higher interest rates have helped the currency offer some of Asia's best returns this year to investors who borrowed in dollars.

& # 39; Now Hawkish & # 39;

"The rise in world oil prices will increase inflationary pressure and increase India's fiscal deficit," Vik Mehrotra, executive director of Venus Capital, based in Boston, said in an email. "The bank does not have room to reduce rates and its general position is now lasting."

Consumer prices rose by a maximum of seven months from 3.6 percent in October and a Bloomberg Economics index shows core inflation, which eliminates volatility The price of vegetables and oil is rising and wage increases for government employees the costs of housing are increasing.

However, Modi's advisers said that India's rates are too high. The central bank's tendency to overestimate inflation has cost the economy, according to Ashima Goyal, a member of the Prime Minister's Economic Advisory Council. echoed his colleague Surjit Bhalla.

Gross domestic product growth picked up to 6.3 percent in July-September of the previous year, halting a slowdown of five quarters, but still lower than economists estimated. The GVA increased by 6.1 percent. India gave up its position as the world The RBI retained its neutral monetary position, which means that "all possibilities are there on the table," said Governor Urjit.

Data Monitoring

The RBI maintained its neutral monetary stance. Patel said at an informational meeting in Mumbai after the announcement. "We do not consider changing the position because nothing between October and now was significant enough in the macro results to guarantee that." He said the RBI will continue to monitor incoming data.

Data due this month will show whether India's current account deficit has stabilized in July-September after having shot up to a 2013 high in the previous quarter. At the beginning of next year, India will publish revised growth figures for the year ending March 2017 and then in February the government is expected to announce its budget.

"Monetary policy can help the economy only after the political interventions initiated by the government to neutralize The effects of demonetization and GST begin to show some results," said Devendra Kumar Pant, chief economist of India Ratings Ltd. " Only once the fiscal policy improves the investments in the economy, can the changes in the monetary policy on the part of the RBI help. "

– With the assistance of Manish Modi, Cynthia Li, Hemal Savai and Kartik Goyal

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