India set to raise lending, keeps rates on hold

MUMBAI - Agence France-Presse

A cashier counts Indian currency at a bank in Mumbai, India, on Dec 14. AP photo

India’s central bank moved to increase liquidity in the banking system yesterday, but kept interest rates unchanged despite concerns about slowing growth in Asia’s third-biggest economy.

The Reserve Bank of India (RBI) cut the cash reserve ratio for banks by 50 basis points, which reduces the amount of cash they need to hold in a move aimed at boosting lending.

After its policy meeting in the financial capital Mumbai, the bank kept benchmark interest rates on hold.
The bank’s repo rate at which it lends to commercial lenders is at a near three-year high of 8.50 percent, while the reverse repo rate which it pays banks for deposits is at 7.50 percent -- the highest level in more than a decade. The central bank also slashed its prediction for economic growth to 7.0 percent from a previous 7.6 percent for the financial year to March.

India’s economy grew 8.5 percent last year. The RBI has raised interest rates 13 times since March 2010 in a prolonged battle against inflation, which has stayed close to 10 percent.

But the business community has expressed concern that high borrowing costs are dampening demand.
India’s industrial production suffered a shock contraction in October when output shrank 4.7 percent year-on-year, but has since returned to growth.