The Reserve Bank of India (RBI) said the benchmark repo rate, at which it lends to commercial banks, would remain at 8 percent, while the reverse repo rate, which it pays banks for deposits, would stay at 7 percent. The cash reserve ratio — the sum commercial banks keep on deposit — was also unchanged at 4.75 percent.
The move went against most economists’ expectations of a further easing in rates by the RBI following its first reduction in three years in April, amid a host of economic problems for the once-booming Asian giant.
“There are several factors responsible for the slowdown in activity, particularly in investment, with the role of interest rates being relatively small,” said the RBI in a statement.
“Consequently, further reduction in the policy interest rate at this juncture, rather than supporting growth, could exacerbate inflationary pressures.” The bank has been under pressure to help revive growth after the economy grew just 5.3 percent in January to March, its slowest quarterly expansion in nine years.
But hopes of an aggressive cut by the policy-makers in Mumbai were tempered by data last week showing a marginal rise in wholesale price inflation in May to 7.55 percent on an annual basis.