India’s central bank held interest rates steady on Tuesday, keeping a watchful eye on inflation as it waits to assess the impact of weak annual rains on food prices.
After meeting in financial capital Mumbai, the Reserve Bank of India (RBI) said the benchmark repo rate, at which it lends to commercial banks, would remain unchanged at a steep 8 per cent.
The move was widely expected by economists, who said the RBI needed time to assess whether a drought situation could emerge and send food prices soaring.
“While inflation at around 8 per cent in early 2015 seems likely, it is critical that the disinflationary process is sustained over the medium term,” governor Raghuram Rajan said in a statement today.
“The balance of risks around the medium-term inflation path, and especially the target of 6 per cent by January 2016, are still to the upside, warranting a heightened state of policy preparedness to contain these risks if they materialise.”
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