MUMBAI, India – 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 per cent 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 per cent 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 labour 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 per cent for the last fiscal year, the second year of sub-5 per cent expansion after a decade of growth over 8 per cent.
The government estimates the economy needs to expand by more than 8 per cent each year to provide jobs for the millions of young people entering the workforce each year.