By CentralBankNews.info
India’s central bank held its main interest rates steady, defying expectations for a rate hike, but stressed it was not soft on inflation and was poised to act if inflation does not fall in coming months.
The Reserve Bank of India (RBI), which raised rates at its two previous meetings to curb inflation and dampen the fall in its rupee currency, acknowledged it’s decision was a close one and “there are obvious risks to waiting for more data, including the possibility that tapering of quantitative easing by the US Fed may disrupt external markets and that the Reserve Bank may be perceived to be soft on inflation.”
“There is, however, reason to wait before determining the course of monetary policy,” the RBI said, due to the risk to the weak economy from tightening policy too much given the long lag of any rate rise.
India’s inflation rate, as measured by benchmark wholesale prices, rose for the sixth month in a row in November 7.52 percent from 7.0 percent in October, boosted by a 19.9 percent jump in food prices, fueling expectations that the RBI under its new governor Raghuram Rajan would again raise rates.
But the RBI expects headline inflation to fall significantly in the next months as vegetable prices are seen turning down sharply, the stable exchange rate would have a disinflationary impact along with the impact of the negative output gap, slower growth in services and the lagged effects of tighter monetary policy since July.