India's central bank hinted on Monday that interest rates may be kept unchanged at a policy meeting this week, warning that inflation remained high, even as the growth outlook has weakened.
"Inflation and upside risks to inflation remain high," the Reserve Bank of India (RBI) said in its macroeconomic and monetary review published on the eve of the scheduled monetary policy meeting.
"Monetary actions will need to strike a balance between risks to growth and inflation."
Analysts widely expect central bankers to keep interest rates on hold at their meeting as they wait for clearer evidence that inflation is on a downward trend.
Inflation dropped to 7.47 percent on an annual basis in December, a two-year low, but it is still above the bank's comfort level of around five percent.
The RBI, which has raised interest rates 13 times since March 2010, said inflation in non-food manufactured products remained persistently high.
A small section of economists suggest that the RBI may announce measures to boost liquidity in the system by lowering its cash reserve ratio -- the sum commercial banks keep on deposit.
Industry experts and bankers have called on the central bank to start cutting rates soon, saying tight monetary policy is hurting investment demand, lowering business confidence and economic growth.
The government now expects India's economy to grow by 7.0 percent for the financial year to March 2012, down from a projection in the budget of nine percent.
Source: AFP Asian Edition