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Indian central bank warns of "limited space" for cuts

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(Globalpost/GlobalPost)

India's central bank on Thursday struck a hawkish tone in a report released a day before a monetary policy meeting, saying it had "very limited" space available to cut rates.

The report could dent the hopes of economists and the financial markets, who expect the Reserve Bank of India to cut interest rates by 25 basis points on Friday owing to falling inflation and slackening growth.

"In view of macro-financial risks which stay significant, headline inflation remaining above the threshold and consumer price inflation remaining high, the monetary space for action for 2013-14 remains very limited," the RBI said.

The Wholesale Price Index fell to 5.96 percent in March from a year earlier, slipping below six percent for the first time in nearly three-and-a-half years.

But the Consumer Price Index remained in double digits at 10.39 percent.

"This reflects substantially food inflation pressures," the bank said.

The RBI has for several months stressed the need to reduce inflation even if it meant sacrificing near-term growth, despite calls from business leaders for lower borrowing costs to boost the economy.

The bank slashed rates by 25 basis points at its previous two meetings in March and January. Rates had been on hold for the previous nine months.

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http://www.globalpost.com/dispatch/news/afp/130502/indian-central-bank-warns-limited-space-cuts