Jan. 30 (Bloomberg) -- India's central bank may keep interest rates near a six-year high as it judges the risk of accelerating domestic inflation a greater concern than slowing global economic growth.

The Reserve Bank of India will maintain its repurchase rate at 7.75 percent at the next monetary policy announcement on April 29, according to six of nine economists surveyed by Bloomberg News. Governor Yaga Venugopal Reddy kept all three of the bank's policy tools unchanged in Mumbai yesterday.

India's government faces elections in a year and wants to contain inflation, an issue that affects votes in a country where more than half of the 1.1 billion people live on less than $2 a day. Though the central bank said a slowing global economy is a risk for India, it maintained its growth forecast for the year to March 31 at 8.5 percent.

``While the government favors elevated growth, it is well aware that voters do not favor it with the price tag of higher inflation,'' said Rajeev Malik, senior economist at JPMorgan Chase & Co. in Singapore. ``There is a palpable feeling that inflation shouldn't become an issue'' for the elections.

Rising prices in 2007 caused Prime Minister Manmohan Singh's Congress party to lose power in two states and fall further behind in the most populous province of Uttar Pradesh.

General Elections

Singh's party faces 10 state elections this year and general elections before May 2009. His coalition allies this month objected to a government plan to reduce subsidies on diesel and gasoline, which would stoke inflation by passing oil costs onto consumers.

Bond yields rose for a fourth day today as the central bank refrained from taking cues from the U.S., which is expected to cut rates today after a 75 basis point emergency reduction last week.

The yield on the benchmark nine-year government bond gained 1 basis point to 7.56 percent at 2:00 p.m. in Mumbai.

Bets on an interest rate cut had increased after the U.S. Federal Reserve slashed its target rate to 3.5 percent from 4.25 percent on Jan. 22. Six of 18 economists had expected Reddy to lower the repurchase rate, compared with none surveyed before the Fed decision, because of widening interest rate differential between the U.S. and India.

``It's very difficult to predict what the central bank will do at the next policy meeting,'' said Dharmakirti Joshi, principal economist at Mumbai-based Crisil Ltd., the local unit of Standard & Poor's Ltd. ``No one knows what the impact of U.S. rate cuts will be on international financial markets or which way oil prices will go.''

Inflation `Suppressed'

For the moment, inflation is ``suppressed,'' the bank said this week, because prices don't reflect last year's 57 percent increase in crude oil costs.

The economists surveyed yesterday indicated the Reserve Bank would only cut rates before its April 29 meeting should events outside India affect the economy.

``India cannot be totally immune to global developments,'' the Reserve Bank said yesterday, adding it would respond ``swiftly'' to changes in the global economy.

The spread between two-year Indian government bonds and similar maturity U.S. Treasury notes has widened to 5.19 percent from as low as 1.84 percent in June, the most in at least eight years. Inflows of capital from investors seeking higher returns could spur inflation.

The interest-rate gap is likely to get even wider. The chance of a half-point cut by the Fed later today is 86 percent, with 14 percent odds for a quarter-point reduction, according to a Bloomberg News survey.

Reddy said yesterday that it wasn't clear if there would be an increase or decrease in capital inflows.

``While the focus has generally been on managing excess capital inflows, it is essential not to exclude the possibility of some change in course, due to any abrupt changes in sentiment,'' the governor said yesterday.

`Armory Intact'

``It is more prudent for the central bank to keep the armory intact than shoot in the dark,'' said Navneet Munot, executive director at Morgan Stanley Mutual Fund in Mumbai.

Overseas investors sold a net $3.01 billion of shares this month after they bought a record $17.2 billion of stocks in 2007.

India's benchmark inflation rate has climbed to a four- month high of 3.83 percent. People's tolerance level for inflation is 4 percent, according to Finance Minister Palaniappan Chidambaram.

The following is the rate forecast on or before the April 29 monetary policy announcement:

---------------------------------------------------------------

Cash
                                            Reverse   Reserve
Company                         Repo Rate      Repo     Ratio
---------------------------------------------------------------
Median                               7.75%     6.00%     7.50%
% estimates at Median               66.67%    88.89%    77.78%
Average                              7.67%     5.97%     7.58%
High                                 7.75%     6.00%     8.00%
Low                                  7.50%     5.75%     7.50%
Number of Estimates                     9         9         9
---------------------------------------------------------------
ABN Amro Bank                        7.75%     6.00%     7.50%
Anand Rathi Securities               7.50%     6.00%     7.50%
CRISIL Ltd.                          7.75%     6.00%     7.75%
JM Financial Asset Management        7.75%     6.00%     7.50%
JPMorgan Chase Bank **               7.50%     6.00%     7.50%
Kotak Mahindra Bank                  7.75%     6.00%     7.50%
Lehman Brothers                      7.75%     6.00%     8.00%
Standard Chartered Bank *            7.75%     6.00%     7.50%
Yes Bank                             7.50%     5.75%     7.50%
---------------------------------------------------------------

Note: * Standard Chartered expects 100 bps

increase in CRR by June 2008.

** JP Morgan Chase Bank expects 25 bps

cut in Repo Rate either in April or

July policy announcement.

To contact the reporter on this story: Cherian Thomas in Mumbai at cthomas1@bloomberg.net.

Last Updated: January 30, 2008 04:16 EST