To rein in inflation, RBI keeps major rates unchanged

Rates unchanged due to risks from food price shocks and geopolitical developments that could materialise rapidly, says RBI governor Raghuram Rajan

GN BUREAU | September 30, 2014


RBI governor Raghuram Rajan
RBI governor Raghuram Rajan

As anticipated by the economists and market leaders, Reserve Bank of India (RBI) in its fourth bimonthly monetary policy statement left untouched all major rates affecting the economy.

In its policy statement released today (September 30), the apex bank stated that on the basis of an assessment of the “current and evolving macroeconomic situation”, repo rate under the liquidity adjustment facility (LAF) has been kept unchanged at 8 percent. Also, the cash reserve ratio (CRR) of scheduled banks is kept unchanged at 4 percent of net demand and time liabilities (NDTL).

Further, the reserve repo rate under the LAF will remain unchanged at 7 percent, and the marginal standing facility (MSF) rate and the bank rate at 9 percent.
By leaving all the major rates unchanged, the RBI has made it clear that it is not going to allow any cuts in the interest rates until it is confident of controlling the consumer inflation and bringing it down to 6 percent – the target set by RBI – by January 2016.

Talking about the reason behind keeping the major rates unchanged, RBI governor Raghuram Rajan said, “There are risks from food price shocks as the full effects of the monsoon’s passage unfold, and from geopolitical developments that could materialise rapidly.”

The decision of keeping the rates unchanged has not been fully appreciated by the industry.

Commenting on RBI’s decision, Chandrajit Banerjee, director-general, Confederation of Indian Industry ( CII)  said, “RBI’s decision to maintain status quo on policy rates is not fully unexpected as in the growth-inflation dilemma, the concern is to guard against the anticipation of upside risks emerging from inflationary expectations.”

However, he added, “By all indications, the twin deficits –  fiscal and current account – are well under control and core inflation has been trending downwards. While on the other hand, industrial production has been muted. This could have been a good opportunity for the RBI to reduce rates.”
According to a statement issued by the CII today, industrial sector is at the threshold of the busy credit season when the demand for bank credit is anticipated to go up and with the festive season demand for consumer goods is likely to increase.

In this context, the “infusion of liquidity at this juncture, through a reduction in policy rates, would have provided an impetus to the feel good factor brought on by the recent burst of policy announcements made by the government”, read the CII statement.

Comments

 

Other News

Nitish Kumar quits as Bihar CM

Nitish Kumar resigned as chief minister of Bihar on Wednesday, just hours after RJD chief Lalu Prasad ruled out his son and deputy chief minister Tejashwi Yadav putting in his papers following a case being registered by the CBI. The JD(U) and RJD alliance had been under considerable strain o

Will the needy get homes under PMAY?

 The Pradhan Mantri Awas Yojana (PMAY), introduced in June 2015, aims at providing every family with “a pucca house with water connection, toilet facilities, 24x7 electricity supply” by the time the nation completes 75 years of its Independence in 2022.   The Yoj

No longer a walk in the park for bureaucrats

Continuing as a bureaucrat just got a lot tougher with the government weeding out the incompetent and taking action against 381 civil services officers, including 24 who were from the Indian Administrative Service.   The Narendra Modi government’s action against civil s

Kashmir’s ‘Nelson Mandela’ arrested for terror funding

 The National Investigating Agency (NIA) has arrested Shabbir Shah, who was once called the Nelson Mandela of Kashmir for his advocacy of peace, for his alleged involvement in money laundering to support terrorism in Kashmir. Shah, whose J&K democratic freedom party is a part of the pro-

Quantum urbanism: Step one, dismantle systems thinking once and for all

Feel your favourite city. The words that typically come to your mind are liberally fused with adjectives in a valiant effort to give shape to our deeply felt emotions. It is quite common to find descriptions that are a chaotic and joyful mix of traits and idiosyncrasies that one can mistake for a good frie

Should employment exchanges be scrapped?

Should employment exchanges be scrapped?





Video

Death toll rises to 17 in Mumbai building collapse

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter