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India’s central bank holds rates as food prices soar

MUMBAI (AFP) – India’s central bank left interest rates unchanged yesterday but warned that higher food prices, caused in part by extreme weather, had impacted household budgets and halted a downward inflation trend.

The benchmark repurchase rate has been kept at 6.50 per cent since the last hike by the Reserve Bank of India (RBI) in February.

Consumer prices were “expected to surge during July (and) August led by vegetable prices”, Governor Shaktikanta Das said in a webcast. “While the vegetable price shock may reverse quickly, possible El Nino weather conditions along with global food prices need to be watched closely against the backdrop of a skewed southwest monsoon so far.”

Inflation edged up to 4.81 per cent in June after falling to 4.31 per cent in May. It peaked at 7.79 per cent in April last year.

The bank’s decision was in line with analyst expectations.

Economists warn inflation in the short term could again breach the RBI’s upper tolerance band of six per cent because of rising prices for crude oil and food, including tomatoes – a staple in Indian cuisine.