India's central bank kept key interest rates unchanged Tuesday, but warned that inflation will rise faster than previously expected as the economy recovers and drought pushes up food prices. The Reserve Bank of India said in its quarterly policy review that headline inflation will likely hit 6.5 percent by March. That's higher than its July prediction of 5 percent, and higher than its medium-term inflation target of 3 percent. It left its prediction of 6 percent economic growth, with an upward bias, for the fiscal year ending March unchanged. “The global economy has begun to recover from the deep recession set off by the financial crisis,” RBI governor D. Subbarao said in a statement. “The pace and shape of recovery, however, remain uncertain.” The bank's decision to leave interest rates unchanged is in line with expectations, but leaves unanswered the questions of when and how fast India will begin to unwind the huge monetary stimulus it pumped into India's economy after the collapse of Lehman Brothers late last year.
