India's central bank hints it will hold rates

India's central bank on Monday called on the government to help reduce inflation as it hinted it was unable to cut interest rates further to spur the flagging economy.

The Reserve Bank of India, which holds a policy-setting meeting on Tuesday, said there were still risks that inflation could take off again despite the economy growing at its slowest rate in nine years in the first quarter.

"Persistence of inflation, even as growth is slowing has emerged as a major challenge for monetary policy," it said in a report released on the eve of its meeting.

In comments directed at the government, the RBI also said that "the lack of a quick policy response to address structural bottlenecks and encourage investment exacerbated the (economic) slowdown".

The economy was now at a "critical juncture" and the RBI encouraged "policy actions to encourage investment", which would include removing constraints on foreign direct investment.

A weak monsoon, which has seen rains more than 20 percent weaker than normal so far, is another risk for inflation because of the potential impact on food prices if crops fail.

The once-booming Indian economy is suffering from slowing industrial growth, troublesome fiscal and current account deficits and a stalled reform agenda, analysts say.

The economy grew just 5.3 percent in January to March, its slowest quarterly expansion in nine years.

The RBI said that inflation remained "sticky" and posed a major challenge for monetary policy, even as risks to growth had increased.

The central bank lowered rates in April to kickstart growth -- its first such move in three years -- but has since kept monetary policy steady despite pressure from business leaders to boost the economy.

Source: http://news.yahoo.com/indias-central-bank-hints-hold-rates-190612894--finance.html

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