India Pauses Record Rate Rises on Growth Risks

India’s central bank refrained from raising interest rates for the first time in eight meetings as inflation cools and the fallout from Europe’s debt crisis threatens growth. The rupee pared gains and bonds rose.

The Reserve Bank of India left the repurchase rate at 8.5 percent, according to an e-mailed statement in Mumbai on 16 December.

Governor Duvvuri Subbarao paused after inflation slowed to a one-year low and industrial output fell for the first time in 28 months, tilting the balance of risks toward growth. The rupee rebounded from a record low, helping cut import costs and giving the central bank scope to spur expansion.

India’s rupee, which has weakened about 15 percent this year, surged as much as 2.7 percent against the U.S. dollar earlier on 16 December. The jump followed the central bank’s measures including curbs in rupee-forward trading after the currency dropped to an all-time low of 54.3050.

Rupee, Bonds

The rupee retreated to 52.87 per dollar from 52.74 before the Reserve Bank’s policy announcement. The yield on the 8.79 percent government note due November 2021 fell to 8.46 percent from 8.52 percent earlier, according to the central bank’s trading system. The BSE India Sensitive Index (SENSEX), which has lost a fifth of its value in 2011, climbed 0.6 percent.

While India’s benchmark wholesale-price inflation slowed to a one-year low of 9.11 percent in November, it’s still higher than in other so-called BRIC nations. Consumer prices rose 6.6 percent in Brazil, 6.8 percent in Russia and 4.2 percent in China last month.