By Zubair Ahmed BBC correspondent in Bombay

At 6%, interest rates are the lowest in independent India's history.

And yet, a wide gap still exists between Indian rates and those of the world's leading economies.

The media and markets alike had expected the bank to lower the benchmark bank rate, which is used by banks to price loans, by half a percentage point in order to boost growth.

But analysts say the bank's new governor, Dr Y Venugopal Reddy, has played safe.

Dr Reddy told the BBC there was no need to, as he put it, tamper with the bank rate because the economy was doing well and forecasts were encouraging.

Good monsoon

In the last review in April, the bank said the economy would grow at less than 6%.

But on Monday, Dr Reddy predicted the growth rate might touch 7%, which would make India one of the fastest growing economies in the world.

His optimism is based on some hard facts: a good monsoon this season, better than expected industrial growth, a steady flow of foreign investment and a rise in the stock market.

Market analysts, however, were not happy at the governor's decision to keep rates unchanged.