MUMBAI, April 24, 2007 (AFP) – The Reserve Bank of India on Tuesday left key short-term borrowing rates unchanged as it seeks to keep economic growth on track despite inflation running well above its comfort zone. The RBI’s decision had been widely expected following a series of rate hikes but significantly, the central bank also tweaked its inflation target slightly lower, suggesting it remains ready to tighten policy further if need be.
An economist said trends in the local and global economy currently favour the Indian central bank’s stance.
“Inflation will slow in coming weeks. Global demand will slowdown as will economic growth, so the bank should be able to lower the pace of credit growth,” said Manika Premsingh, an economist with brokerage Edelweiss Capital.
The RBI has raised short-term lending rates twice this year, by a quarter of a percent each time to 7.75 percent — the highest level in more than four years — to contain inflation running above six percent.
It had previously aimed for an annual inflation rate of 5.0 to 5.5 percent but said in a regular quarterly review that the earlier rate hikes should help to bring price rises down towards the lower end of that range.