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Reuters/Paco Chuquiure
Holding steady.

A day after India announced robust GDP growth, Raghuram Rajan keeps key policy rates unchanged

By Madhura Karnik

For India, 2015 was the year of rate cuts with the Reserve Bank of India (RBI) slashing the key lending rate four times.

But on Dec.1— in the last monetary policy review of the calendar year—RBI governor Raghuram Rajan kept the repo rate unchanged after consumer inflation reached a four-month high in October.

Rajan cut the repo rate—the rate at which the central bank lends to commercial banks—by a total of 125 basis points (bps) in 2015. At present, the repo rate is at 6.75%, the lowest in four years. A slump in global commodity prices eased inflation in India this year and provided room for monetary easing.

Here are all the rate cuts this year:

Date Rate cut by Rate cut to
June 2 25 bps 7.25%
March 4 25 bps 7.50%
Jan. 4 25 bps 7.75%
Sept. 29 50 bps 6.75%

“What we have is an economy which is well and truly in recovery but with areas of weakness,” Rajan said at a press briefing in Mumbai. These “areas of weakness” include agriculture and construction, but Rajan said he is confident that public spending would stimulate these sectors soon.

“The step-up in public capital spending and the easing stance of monetary policy provide the enabling environment for a revival in private investment demand, supported by easing input prices and improving conditions for doing business. The growth projection for 2015-16 has accordingly been kept unchanged at 7.4% with a mild downside bias,” the RBI said in the policy statement.

On Nov. 30, government data showed the economy expanded at 7.4% in the June-September quarter, which is slightly more than what the analysts had predicted.

But even though India’s GDP growth has outpaced China’s in the second quarter, Rajan would be vigilant in the coming months, since food prices are already on the rise. Going forward, the RBI would also take into consideration the effects of the Seventh Pay Commission’s proposals on wages and rent, the statement said.