MUMBAI: India's central bank is expected to keep interest rates on hold Tuesday, judging it too early to begin lowering them despite concerns over slowing growth in Asia's third-largest economy.
Policymakers from the Reserve Bank of India (RBI) are to meet in the financial capital Mumbai, with pressure mounting from business leaders for the bank to help stimulate growth.
The RBI has raised interest rates 13 times since March 2010 in a battle against inflation that has stayed close to 10 percent.
Analysts and economists widely believe the bank will stand pat -- as it did in its previous policy meeting in December -- and wait for clearer signals that inflation is on a downward spiral.
Inflation dropped to 7.47 percent on an annual basis in December, a two-year low, but it is still above the bank's comfort level of around five percent.
With the Indian rupee still weak at 51.2 against the dollar, there is also a risk of "imported inflation" as imports become more expensive to buy.
"A cut at this time could be perceived as a dilution of the RBI's inflation-fighting stance, which the bank would possibly like to avoid at the moment," said Siddhartha Sanyal, chief India economist with Barclays Capital.
Deepali Bhargava, chief economist with Espirito Santo Securities, agreed, saying: "The RBI is not likely to let go of inflation priority."
The bank's repo rate at which it lends to commercial banks is at a near three-year high of 8.50 percent while the reverse repo rate that it pays banks for deposits is at 7.50 percent -- its highest in more than a decade.
India's industrial production has returned to growth, data showed earlier this month, after a shock contraction in October when output shrank 4.7 percent year-on-year.
RBI governor Duvvuri Subbarao is expected to strike a more dovish tone with "growth concerns now predominating", said Moody's Analytics economist Glenn Levine, who echoed other analysts in predicting a possible rate cut in March.
The bank is also likely to lower its growth forecast for India to around 7.0 percent from an earlier 7.5 percent -- in-line with the government's projections -- for the financial year to March 2012.
The economy grew by 8.5 percent last year.
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