India Leaves Rates Unchanged, Warns of Inflationary Risks

Indranil Mukherjee | AFP | Getty Images

The Reserve Bank of India kept interest rates unchanged on Monday after cutting them in each of its previous three policy reviews, warning of upward risks to inflation posed by a falling rupee and increases in food prices.

The RBI also called for vigilance over global economic uncertainty, citing the risks of a reversal of capital flows from emerging markets. Such outflows would exacerbate the country's high current account deficit.

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As expected, the Indian central bank left its policy repo rate unchanged at 7.25 percent and kept the cash reserve ratio (CRR), or the share of deposits banks must keep with the central bank, steady at 4.00 percent, despite falling inflation in recent months.

"It is only a durable receding of inflation that will open up the space for monetary policy to continue to address risks to growth," the Reserve Bank of India said in a statement announcing its mid-quarter policy review.

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A Reuters poll released on Thursday showed 28 of 38 analysts expected the RBI to hold the repo rate steady and 30 of 34 saw the CRR unchanged.

The central bank left rates on hold despite headline wholesale price index inflation that fell to 4.7 percent in May, within its comfort zone, as well as an economy that grew at just 5 percent in the fiscal year that ended in March, its weakest in a decade.