MUMBAI (Reuters) - The Reserve Bank of India (RBI)
unexpectedly kept the country's policy interest rate on hold on
Wednesday, despite calling current inflation too high, citing the
prospect of easing retail prices and its concerns about the weak
domestic economy.
The RBI had been widely expected to lift its repo rate by 25 basis
points, but instead opted to keep the country's main lending rate at
7.75 percent.
"The policy decision is a close one. Current inflation is too high," said the RBI in its policy statement.
However, the RBI also cited its reluctance to over-react given the
"wide bands of uncertainty" surrounding the outlook for inflation amid
signs of sharply falling vegetable prices and "the weak state of the
economy."
Still, the central bank said it would remain vigilant on inflation
and that it would be ready to act even in between policy reviews should
headline or core inflation not ease as expected, albeit in a
"calibrated" manner.
The RBI added it would gauge the impact of any decision by the U.S.
Federal Reserve to withdraw its monetary stimulus. The U.S. central bank
concludes its policy meeting later in the day.
"There are obvious risks to waiting for more data, including the
possibility that tapering of quantitative easing by the U.S. Fed may
disrupt external markets and that the Reserve Bank may be perceived to
be soft on inflation. The Reserve Bank will be vigilant," it said.
The RBI had raised interest rates by a quarter percentage point at
its previous reviews in September and October. No review was held in
November.
(Reporting by Suvashree Dey Choudhury; Editing by Rafael Nam)
