India central bank leaves interest rates unchanged, says economic growth could beat forecasts

India central bank says economy could grow faster

NEW DELHI — India’s central bank left interest rates unchanged Tuesday and said Asia’s third-biggest economy could grow faster than forecast as it emerges from the global credit bust.

Bank Gov. D. Subbarao said “the global economy was showing incipient signs of stabilization, albeit not recovery.”

The central bank said there is now “an upward bias” to its forecast for the economy to grow 6 percent in the year ending March 2010. The Indian economy grew by 6.7 per cent in the last fiscal year, better than most analysts had expected, but lower than the growth of 9 per cent in the previous year.

As expected, the bank kept the repo rate for short-term loans to commercial banks unchanged at 4.75 percent and the reverse repo rate — the rate it pays to banks when absorbing funds from the financial system — unchanged at 3.25 percent. It also kept the cash reserve ratio, the amount of cash banks must keep on deposit with the central bank, unchanged at 5 percent.

The bank said there are signs of recovery in the Indian economy, with food stocks increasing, industrial output growing and business confidence improving. There were also emerging risks such as a delayed and deficient monsoon for farmers, food price inflation and rising global commodity prices.

India has already taken aggressive measures to boost growth — slashing interest rates and announcing fiscal stimulus packages, which helped pump more than 5.6 trillion rupees into the financial system.

“Amid a positive outlook, the need for monetary easing has softened. However, to support the current recovery, the central bank is expected to keep monetary policy at the accommodative setting at least for the rest of the year,” said Sherman Chan, an economist at Moody’s Economy.com in Sydney.