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

Battle over cattle, Delhi govt schools lead the way and, why we must return to Gandhi & Tagore

On May 23 this year, the ministry of environment issued ‘Rules on prevention of cruelty to animals (regulation of livestock market)’ with the purported aim of regulating animal markets. When one reads the rules – notwithstanding the lame efforts from union ministers to issue clarificati

BEML unveils 9 MW capacity windmill park

  BEML, a mini ratna category-1 enterprise of the defence ministry, has set a target of using 100 percent renewable energy for its own consumption.   In this connection, BEML’s 9 MW Windmill Park installed at Bagalkot District in Karnataka was recently

BHEL registers increase in intellectual capital

  Bharat Heavy Electricals Limited (BHEL), a Maharatna enterprise, has recorded nearly 14 percent growth in its intellectual capital in 2016-17 fiscal. During the year, a record 508 patents and copyrights were filed by the company, translating into filing of nearly two patents/copyrights

NALCO partners with CII, Odisha for outreach programmes on GST

  National Aluminium Company Limited (NALCO) has joined hands with the Confederation of Indian Industries (CII), Odisha, to organise outreach programmes for industries and other stakeholders on GST implementation.   Series of interactive programmes are being

EPFO inks MoU with HUDCO for Housing for All by 2022

  Taking prime minister Narendra Modi’s vision of ‘Housing for all by 2022’ forward, Employees` Provident Fund Organisation (EPFO) has amended the EPF Scheme, 1952 to provide assistance in acquiring affordable houses to the EPF members by allowing withdrawal from PF to

IndianOil LPG import terminal to reduce refill backlog in Kerala

IndianOil is currently transporting bulk LPG from Mangalore to various LPG bottling plants in north Kerala through about 100 bullet trucks every day, which ply on narrow highways. A pipeline connecting the proposed LPG import terminal to Kochi Refineries Limited and the LPG bottling plants at Udayamperoo



Video

पाकिस्तानी सेना कैमरे में कैद करना चाहती थी ये हमला

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter