The Reserve Bank of India, India's central bank, chose to leave key interest rates unchanged on Thursday, noting in its mid-quarter monetary policy review that falling domestic demand and government spending present challenges to a recovery in Asia's third-largest economy.
The RBI kept its policy repo rate unchanged at 7.75 percent and the cash reserve ratio unchanged at 4 percent. The repo rate is the one at which the RBI lends to the country's commercial banks while the CRR is the percentage of cash reserves, in relation to total deposits, that banks need to maintain with the central bank.
"The outlook for global growth continues to remain moderate, with an uneven recovery across industrial countries. Activity in major emerging market economies (EMEs) barring China has decelerated on account of weak domestic demand," the bank noted in a statement.
On the domestic front, the RBI said the pick-up in real GDP growth in the second quarter was attributed mainly to a growth in agricultural activity and exports, but warned that "the weakness in industrial activity...and subdued domestic consumption demand suggest continuing headwinds to growth."
"Tightening government spending in Q4 to meet budget projections will add to these headwinds," the statement said.