The Reserve Bank of India (RBI) said the benchmark repo rate, at which it lends to commercial banks, would remain at 8.0 per cent because of the risks of inflation.
The bank cut its statutory liquidity ratio for commercial banks by 100 basis points to 23 per cent, which it said should help to boost the credit available to businesses.
The move to hold interest rates had been widely expected by economists after the bank hinted in a report released late Monday that it was unable to cut them further at this point to spur the flagging economy.
“The primary focus of monetary policy remains inflation control in order to secure a sustainable growth path over the medium-term,” said a release from the bank after Tuesday’s decision.
India’s once-booming economy grew just 5.3 per cent between January and March, its slowest annual quarterly expansion in nine years, and the bank revealed gloomy predictions for the near-term future.
It slashed India’s GDP growth forecast for this financial year, which started April, from 7.3 per cent to 6.5 per cent, while predicting that inflation would be higher than previously forecast.
While other central banks around the globe have been easing interest rates in bids to revive their troubled economies, the RBI suggests that economic reforms to boost investment are the key to India’s revival.
The bank lowered rates in April to kickstart growth — its first such move in three years. But it has since kept monetary policy steady, citing inflationary pressures, despite calls from business leaders to stimulate the economy.
