India holds rate despite pressure

Featured - June 19th, 2012
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India’s central bank has kept its 8.0% key lending rate to curb inflation despite pressure from the government and big businesses to cut rates to boost the country’s slowing economy and stimulate economic demand, the Financial Times reports.

India has experienced economic slowdown, with GDP growth slowing to 5.3% and industrial production at alow, prompting Indian businessmen to urge for repurchase rate cuts.

The Reserve Bank of India told The Nikkei that “the role of interest rates in the slowdown was relatively small and that a rate cut at this stage could exacerbate inflationary expectations”.

According to Wall Street Journal, some analysts have urged RBI to resist the pressure to cut rates as inflation starts to rise again. Wholesale prices index rose 7.55% annually in May from 7.23% in April. Food prices shot up 10.74% while fuel prices rose 11.53%.

JP Morgan economist Sajjid Chinoy said that cutting rates would not provide an economic stimulus. Financial Times said Fitch rating agency recently downgraded India to negative from stable while Standard & Poor warned India it may lose its investment-grade status.