RBI keeps key rates unchanged, hints of change by next year

GN Bureau | December 2, 2014



Terming any change in the monetary policy stance at present as “premature”, the Reserve Bank of India (RBI) kept the key rates unchanged in its bimonthly policy review announced on Tuesday.

As widely expected, the central bank kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at eight percent. However, a change is finally round the corner, as RBI also stated in the announcement, “if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle.”

Indian corporate and financial markets were expecting a cut in repo rate as after taking over as RBI chief in September last year Raghuram Rajan hiked the repo rate by 75 bps. However the policy review statement while hinting a cut by early next year, kept the repo rate unchanged.

Further, cash reserve ratio (CRR) of scheduled banks was kept unchanged at four percent of net demand and time liabilities (NDTL). Also, RBI in its statement said that it will continue to provide liquidity under overnight repos at 0.25 percent of bank-wise NDTL at the LAF repo rate and liquidity under 7-day and 14-day term repos of up to 0.75 percent of NDTL of the banking system through auctions.

Matching the stand taken in case of major rates, growth target for the current fiscal is also kept unchanged at 5.5 percent by the apex bank. While noting that “moderate inflation is a must to sustain a healthy growth, RBI said that inflation target will be four percent, plus or minus five percent.

The review statement noted that the fiscal outlook should brighten because of the fall in crude prices. However, it added that weak tax revenue growth and the slow pace of disinvestment suggest some uncertainty about the likely achievement of fiscal targets, and the quality of eventual fiscal adjustment.

According to the review statement, retail inflation decelerated sharply since the fourth bimonthly assessment that took place in September. However, protein-rich items such as milk and pulses continue to experience upside pressures, reflecting structural mismatches in supply and demand. In the fuel group, the absence of adequate administered price revisions in inputs like electricity has contributed to the easing of inflation. Further, in the non-food non-fuel category, inflation eased broadly in September and softening of international crude prices in October eased price pressures in transport and communication.
 
Commenting on the status quo approach adopted by RBI, CII president Ajay S Shriram said, “RBI has leaned in favour of anchoring inflationary expectations in its pursuit of finding a solution to the growth-inflation conundrum which is as per market expectations.”

He added, “CII feels that at this juncture, even a symbolic cut in policy rates would have sent a strong signal down the line that both the government and the RBI are acting in concert to harness demand and take the economy to the higher orbit of growth. Industry was particularly hopeful of a rate cut considering that China has surprised the market by reducing interest rates by 40 basis points to attract investments. A rate cut would have propelled investment demand, spurred spending in rate sensitive consumer durables and given a fillip to construction activity.”

Comments

 

Other News

Lokpal can be set up without LoP, yes, but who’s in hurry?

If it was needed at all, the supreme court has cleared the air. The Lokpal Act, it has ruled, is perfectly implementable even without the pending amendments. The interpretation from the apex court is welcome, but the government does not seem to be in any hurry to appoint the ombudsman in the first place.

Internet shutdown is a knee-jerk reaction: IAMAI

The Internet and Mobile Association of India (IAMAI) has opposed the J&K government order to ban social media and instant messaging apps in the region. IAMAI takes exceptions on the re

Government convinced that PPP model needs to be revisited: Expert

The government feels that the Public-Private Partnership (PPP) model needs to be revisited, said a World Bank expert. “As for the attempts to revive the “flow” of PPP projects, the government is convinced that the model needs to be revisited, with particular focus on rebalancing ri

Would raising an all women batallion help tackle Kashmir`s stone pelters?

Would raising an all women batallion help tackle Kashmir`s stone pelters?

Flying start for UDAN, but there could be rough weather ahead

PM Narendra Modi’s yet another niftily acronymed scheme, UDAN – short for Ude ‘Desh Ka Aam Naagrik’ and otherwise called ‘Regional Connectivity Scheme’ in officialese – got off to a flying start on Thursday. Modi formally launched a flight from Shimla to Delhi, and

It’s very rare to get the right budget to do what producers want: Thota Tharrani

He accompanied his father to film studios in Chennai and helped him in designing sets, but Thota Tharrani wanted to be an artist. So he studied mural painting and print-making, but as luck would have it, he finally returned to tinsel town. And the world soon took note. In Mani Ratnam’s pa



Video

विनोद खन्ना के अंतिम संस्कार पर भावुक हुए ऋषि कपूर

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter