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India surprises by holding rates at six-year low

India’s central bank has unexpectedly held interest rates at a six-year low.

The cost of borrowing will remain unchanged at 6.25% ahead of a possible increase in US interest rates later this month.

The decision came as the Reserve Bank of India (RBI) held its first press conference since new bank notes were introduced.

The BBC was one of several media organisations prevented from attending the briefing.

The central bank blamed a decision to move the press conference to a small venue.

Analysis: Sameer Hashmi, Indian business correspondent

The Reserve Bank of India gave no clear reason for its unprecedented decision to exclude some media organisations including the BBC from attending today’s press conference held by its governor, Urjit Patel, after the monetary policy meeting.

“Space constraint” is the only official response we were given. That is somewhat ironic considering that only last year the RBI started holding press conferences in a bigger room to accommodate more journalists.

The tradition has been that the Governor of the Reserve Bank of India addresses a long press conference after the monetary policy decision. And it’s open to all media organisations. I have attended many such events in the past.

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We have been told that the decision to exclude certain media organisations had nothing to do with the coverage of the recent currency note ban in India – which received widespread criticism for its implementation.

There are concerns that the cash clampdown could cut growth in the world’s fastest-growing major economy.

Expectations of a rate cut rose last week after India reported lower-than-expected economic growth of 7.3% for the three months to September.

That put pressure on the central bank, particularly after Prime Minister Narendra Modi said on 8 November that 500 ($7.30; £6) and 1,000 rupee notes would no longer be legal tender.

While demonetisation was a government decision, it had to be approved by the Reserve Bank. This has led to strong criticism of Mr Patel and the transparency of his institution.

The governor reduced the cost of borrowing when he took up the post in Octoberand replaced Raghuram Rajan, who chose to leave the RBI without seeking a second term.

It was the third cut in rates this year after reductions in January and March.

Mr Patel is known to take a tough line on inflation, which remains one of the big worries in the Indian economy.

India’s longest and shortest-serving governors
Governor Tenure
4. Benegal Rama Rau (1949-1957) 7 years, 197 days
3. C D Deshmukh (1943-1949) 5 years, 323 days
9. B N Adarkar (1970) 42 days
16. Amitav Ghosh (1985) 20 days
Source: Reserve Bank of India

But fresh worries have emerged after the government’s decision to ban 500 and 1,000 rupee bank notes, which caused chaos as people lined up at banks to exchange their old currency.

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Some banks ran out of cash. At others, police were called in to manage queues of anxious customers hoping to change their savings for legal tender.

The surprise government move is aimed at tackling corruption and tax evasion.

But many low-income Indians, traders and ordinary savers who rely on the cash economy have been badly hit. The two notes accounted for about 86% of the cash in circulation.


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