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RBI leaves interest rates steady as economy picks up

RBI governor, Raghuram Rajan
CNBC
RBI governor, Raghuram Rajan

The Reserve Bank of India kept interest rates unchanged at its meeting on Tuesday, a day after data showed India cementing its position as the world's fastest-growing major economy.

The RBI kept its repo rate steady at 6.75 percent, having already slashed the rate four times this year. None of the economists polled by Reuters had expected a change.

In its statement accompanying the rate decision, the RBI said it will use available room to stimulate the economy, if needed, but warned that a recent rise in consumer prices required vigilance. India's economy grew by 7.4 percent in the three months through September, quickening from a 7 percent expansion three months prior.

"While there are areas of robust growth in manufacturing such as capital goods and passenger cars, weak rural and external demand holds back stronger overall growth," the central bank said.

"The step-up in public capital spending and the easing stance of monetary policy provide the enabling environment for a revival in private investment demand, supported by easing input prices and improving conditions for doing business."

Growth was driven by the manufacturing sector, where activity climbed 9.3 percent from a year earlier as a slump in prices of imported commodities lifted the gross value added by companies. Professional services and trade and transport also grew at a brisk pace.

Amidst the healthy activity, there were still a few signs of concern. Activity in the construction sector, where many banks have hefty exposures, remained feeble.

Nominal output during the quarter also rose at a slower pace than real output, which strips out the effect of inflation. This indicates that wholesale prices are falling.

A private sector gauge of manufacturing also eased to a 25-month low, although remained above the mark that separates expansion from contraction.