India Holds Interest Rates Steady, Despite Slowing Growth

Posted June 18th, 2012 at 10:45 am (UTC-5)
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India's central bank kept interest rates unchanged Monday in a bid to curb inflation, despite pressure to cut rates to spur lagging economic growth.

The Reserve Bank kept the rate at 8 percent, and the cash reserve rate for banks at 4.75 percent.

The bank said a further rate cut could make inflation worse. It cited several factors in the economic slowdown, particularly in investment, but said that the role of interest rates is “relatively small.”

The bank had been under pressure to cut interest rates after India's growth slowed to 5.3 percent in the period from January to March of this year — the lowest point in nine years.

India has also been grappling with a steep depreciation of the rupee against the dollar.

Hours after India's central bank announced it was holding interest rates steady, Fitch Ratings said it was downgrading India's credit outlook from stable to negative, while maintaining India's rating at BBB-.

The U.S.-based rating agency said the revision reflects heightened risks that India's growth potential could deteriorate if structural reforms are not hastened — including measures to enhance the effectiveness of the government.

Last week, another rating agency, Standard and Poor's, warned that India may become the first BRIC country (Brazil, Russia, India, and China) to lose its investment-grade status.