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.”



Other News

Governance Now journalists win award for best TB reporting

Governance Now on Thursday bagged the REACH Media Awards for 2017-2018 for best reporting (English category) on tuberculosis (TB) at an event co-hosted by REACH, USAID and Lilly Global Health in partnership with the Lancet Commission on Tuberculosis. Our cover story

Simple facts about Special Status states

N Chandrababu Naidu-led Telugu Desam Party (TDP) on Friday parted ways from the BJP-led National Democratic Alliance (NDA) at the centre. The official quitting of the alliance was preceded by the pulling out of two ministers out of the Narendra Modi government, a week ago. The

Peak performance

What is Narendra Modi’s biggest electoral success during the current term as prime minister? At first blush, most would say the Uttar Pradesh victory. That would be looking at the obvious (UP is the heart of the Hindi heartland) and at mere numbers (it has the maximum Lok Sabha seats). Yes, it was a

On a dangerous tangent

The killing of a seven-year-old boy at Ryan International School, Gurgaon, suddenly brought focus on violence by students in school. It was a gruesome case indeed: On September 8 last year, Barun Chandra Thakur dropped his children, including seven-year-old Pradyuman, at school around 8 am. By the time he

Juvenile crime and punishment

Like our jails, our correction centres for juvenile offenders are hardly conducive to bringing about positive change. No one will dispute the fact that an underaged criminal, especially if he or she is a first-timer, needs to be given a chance to reform, however heinous the crime. Unfortunately, society&rs

If you’re happy and you know it...

Finland has emerged as the world’s happiest country, as per the World Happiness Report 2018. The report has ranked 156 countries by their happiness levels, and 117 countries by the happiness of their immigrants. This year, the main focus of the report is on migration within and between countries.

Current Issue

Current Issue


CM Nitish’s convoy attacked in Buxar


Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter