| GEO Business|
| India's central bank keeps rates unchanged|
| Updated at: 2113 PST, Tuesday, July 28, 2009|
MUMBAI: India's central bank on Tuesday kept its two key short-term interest rates unchanged at record lows in a continuing effort to return the economy to rapid growth after being hit by the global slowdown.
The Reserve Bank of India (RBI) projected growth of 6.0 percent "with an upward bias" for the year to March 2010, governor D Subbarao said in the first quarter review of monetary policy.
He said the economy was showing positive signs of revival but added that the figures were "tentative and too weak to suggest a turnaround".
India's economy grew by 6.7 percent in the year ended March 31 -- the slowest rate since 2003 and down from nine percent a year earlier -- as the global economic downturn took effect.
The bank said its policy stance would be to "aid return of the economy to the high growth path of nine percent".
It kept the repo -- the rate at which it lends to commercial banks -- unchanged at a record low of 4.75 percent.
The reverse repo, the rate at which it borrows from banks, was also held at a record low of 3.25 percent.
Economists were not surprised by the decision, which Siddhartha Sanyal of Edelweiss Securities described as "widely expected".
Subbarao also predicted a period of negative inflation in India would soon end and that rates would rise rapidly.
India's inflation is currently at minus 1.17 percent for the week ended June 13, according to the Wholesale Price Index (WPI), India's most watched cost-of-living benchmark.
"Last year's base effect is generating the negative effect, which we expect to wear off by October this year," Subbarao said in the statement.
The RBI projects inflation to rise to 5.0 percent for the fiscal year ending March 2010, from 4.0 percent projected earlier.
"Inflationary expectations are on the rise," said Rupa Rege Nitsure, chief economist with the state-run Bank of Baroda.
Economists expect India's economy to grow by between 6.0 and 6.5 percent for the year to March.
The RBI noted that the financial sector was stabilising but the real sector continued to be in recession.
On GDP growth, the bank said its projection of 6.0 percent "reflects the absence of any firm sign of a definite recovery for the world economy".
"An uptrend in the growth momentum is unlikely before the middle of 2009-10," the governor said, adding that exports demand could remain weak due to the contraction in world trade.
The bank also said the risk of poor agricultural production had increased with the delay in the south-west monsoon.
The central bank said its actions since mid-September 2008 had resulted in augmentation of actual liquidity of 5.61 trillion rupees.
Interest-rate sensitive property and automobile stocks rose on Tuesday on hopes for growth but banking stocks were subdued.
The benchmark 30-share Sensex index was down 77.86 points or 0.51 percent to 15,297.18 by noon Tuesday.