India central bank keeps interest rate unchanged

MUMBAI, India (AP) ? India's central bank kept its key interest rate on hold Thursday, warning that inflation remains a risk despite slowing growth in Asia's third largest economy.

The Reserve Bank of India kept its short-term lending rate unchanged at 8.5 percent. The cash reserve ratio, which regulates the proportion of deposits banks must hold as reserves, was held at 4.75 percent. The bank slashed the reserve ratio by three quarters of a percentage point last week.

The bank warned that high oil prices and India's growing budget deficit are adding to inflation pressures, even as a sluggish global economy, particularly in Europe, threatens growth.

"Upside risks to inflation have increased from the recent surge in crude oil prices, fiscal slippage and rupee depreciation," the bank said in a statement. "Notwithstanding the deceleration in growth, inflation risks remain, which will influence both the timing and magnitude of future rate actions."

The Reserve Bank hiked its key interest rate 13 times in a row before pausing in October, as the effects of monetary tightening began to be felt in the wider economy. Growth slipped in the December quarter to 6.1 percent, the lowest in over two years, on slowing investment.

Indian businesses are likely to be disappointed. Many complain that high interest rates and aggressive government borrowing have made it difficult for them to get the affordable credit they need to grow.

Source: http://news.yahoo.com/india-central-bank-keeps-interest-rate-unchanged-055904810.html

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