Reserve Bank of India stays put on interest rates

India’s central bank kept interest rates steady after its bi-monthly policy meeting on Tuesday, while making the option of further easing dependent on consumer price inflation falling further over the course of the next two years.

The Reserve Bank of India kept its repurchase rate at 6.75%, as expected. That followed an unexpectedly large 50 basis point reduction at its previous meeting, bringing the amount of the reduction year-to-date to 125 basis points.

Governor Raghuram Rajan had front-loaded policy in response to weak domestic and global demand that “were holding back investment,” according to the RBI.

The monetary authority reiterated its forecast that the South Asian country’s economy would expand by 7.4% in the year to the end of March 2016.

Data released on the previous day revealed that gross domestic product expanded at a 7.4% clip in the third quarter of 2915, below New Delhi’s target for annual growth of between 8.0%-8.5%.

“Other indicators suggest the economy is in the early stages of a recovery, though with some areas of continued weakness.”

Two consecutive “deficient” monsoons and slowing construction activity were weighing on the economy, the monetary authority said.

Despite that, the focus of monetary policy was on bringing inflation down to 5% by March 2017 – which some economists believed would be a challenge.

"[The RBI] will use the space for further accommodation, when available, while keeping the economy anchored to the projected disinflation path that should take inflation down to 5% by March 2017," the central bank said in its policy statement.