India keeps rates on hold ahead of election

Tuesday 01 April 2014 08.39
The Reserve Bank of India kept its benchmark repo rate, at which it lends to commercial banks, at 8%
The Reserve Bank of India kept its benchmark repo rate, at which it lends to commercial banks, at 8%

India's central bank kept key interest rates steady today in a widely anticipated move less than a week before the start of national elections.

After a meeting in the financial capital Mumbai, the Reserve Bank of India (RBI) said the benchmark repo rate, at which it lends to commercial banks, would remain at 8%.

"At the current juncture, it is appropriate to hold the policy rate, while allowing the rate increases undertaken during September 2013-January 2014 to work their way through the economy," RBI governor Raghuram Rajan wrote in his statement.

The RBI last raised rates on January 28, the third hike since September last year, as it renewed its battle against high inflation.

Most economists had predicted today's decision as India's most widely watched inflation measure - the wholesale price Index - fell to a nine-month month low of 4.68% in February from 5.05% a month earlier.

Rajan remained concerned by retail inflation, however, due to the possibility of a weaker-than-normal monsoon and adjustments to state-controlled prices of agricultural commodities.

Economists had underlined that India's parliamentary elections, set to begin next Monday, would make the RBI cautious about making any changes to its policy. 

Opinion polls point to the main opposition Hindu nationalist Bharatiya Janata Party (BJP), led by conservative hawk Narendra Modi, winning the elections which end in May. 

Foreign investors have driven up the Indian stock market in recent months expecting a more business-friendly government to take over from the scandal-tainted Congress party.

The Congress has become deeply unpopular after a decade in power over a string of corruption scandals and the slowing economy, which is expanding at its slowest rate in a decade.