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India central bank cautiously optimistic on growth

August 5, 2014

MUMBAI, India (AP) — India’s central bank said Tuesday it sees signs of recovery in Asia’s third-largest economy even though the monsoon season, which is crucial for agriculture, had a weak start.

The Reserve Bank of India left its key interest rate unchanged at 8 percent Tuesday, maintaining a tough stance against stubbornly high inflation. It has faced calls to cut interest rates to help revive flagging growth.

“Domestic economic activity appears to be reviving, with incoming data suggesting a firming up of industrial growth and exports,” RBI Gov. Raghuram Rajan said in a statement.

The central bank remains on guard against inflation partly because of the slow start to the monsoon, which could drive up food costs, hurting the hundreds of millions of poor Indians who live on less than $2 per day.

Wholesale inflation eased to 5.4 percent in June.

“We are not against growth,” Rajan told reporters in a press briefing. But he said growth should be beneficial, not a short-lived mini-boom engineered by easy monetary policy.

Frustration with the slowing economy helped sweep a new government into power in May led by Prime Minister Narendra Modi, who has promised reforms to boost growth.

However, the new government’s promised reforms on labor and increased foreign investment have been stalled in the upper house of parliament, where it does not have a majority.

India’s economy grew 4.7 percent for the last fiscal year, the second year of sub-5 percent expansion after a decade of growth over 8 percent.

The government estimates the economy needs to expand by more than 8 percent each year to provide jobs for the millions of young people entering the workforce each year.

Update hourly