India keeps interest rate at 8 per cent

India is struggling with trade and budget deficits and a slowing economy coupled with high inflation. Many analysts expected that India would cut its interest rate to stimulate the economy but the bank left the rate at 8 per cent to tame inflation.

The vast majority of economists predicted that the rates would be cut. After the decision Fitch Rating industry cut the sovereign debt rating of India to negative. A falling rupee is contributing to the high inflation as imports become more expensive. The inflation rate is above 7 per cent a contrast with the situation in many developed countries where inflation is low.

In the first quarter of this year Indian GDP rose 5.3 per cent. The goal was for 9 per cent growth. Growth last quarter was lowest since 2003. The inflation rate at 7.55 is highest in the BRIC group of countries. For more see this article.