RBI keeps repo rate unchanged at 8%; SLR cut by 50 bps 

In line with market expectations, the Reserve Bank of India on Tuesday kept key rates unchanged. While the repo rate was maintained at 8% and reverse repo rate at 7%, the SLR was cut by 50 basis points.

The cash reserve ratio for banks has been kept unchanged at 4 per cent.

“At this juncture, it is appropriate to leave the policy rate unchanged, and to allow the disinflationary effects of rate increases undertaken during September 2013-January 2014 to mitigate inflationary pressures in the economy,” Rajan said while unveiling the Second Bi-Monthly Monetary Policy Statement for 2014-15.

“Lead indicators point to continuing sluggishness in domestic economic activity in the first quarter of 2014-15. The outlook for agriculture is clouded by the meteorological department’s forecasts of a delay in the onset of the south-west monsoon with a 60 per cent chance of the occurrence of El Nino,” RBI said.

“CPI inflation excluding food and fuel has moderated gradually since September 2013 although it is still elevated,” RBI emphasised. ” The risks to the central forecast of 8 per cent CPI inflation by January 2015 remain broadly balanced. Upside risks in the form of a sub-normal/delayed monsoon on account of possible El Nino effects, geo-political tensions and their impact on fuel prices, and uncertainties surrounding the setting of administered prices appear at this stage to be balanced by the possibility of stronger Government action on food supply and better fiscal consolidation as well as the pass through of recent exchange rate appreciation. Accordingly, at this juncture, it is appropriate to leave the policy rate unchanged, and to allow the disinflationary effects of rate increases undertaken during September 2013-January 2014 to mitigate inflationary pressures in the economy,” the RBI explained.

Rajan reiterated the RBI’s commitment to its target of getting CPI inflation, which accelerated to 8.59 per cent in April, down to 8 per cent by January 2015 and 6 per cent by the year after

Raghuram Rajan on Sunday called on Prime Minister Narendra Modi and is believed to have discussed the macro-economic situation. The bi-monthly policy review is the first after Modi assumed office on May 26.

Finance Minister Arun Jaitley, in a Facebook posting, has stressed on reviving growth momentum and containing inflation. India’s economic growth remained below the 5 per cent mark for the second year in a row at 4.7 per cent in 2013-14, although industry is hopeful of a rebound with a stable government headed by Modi.

An emerging risk on the inflation front is the likelihood of a deficient monsoon, which could lead to a surge in food inflation and affect growth adversely.

The India Meteorological Department has indicated a 60 per cent probability of the El Nino weather phenomenon this year along with a below-normal monsoon. The RBI has increased the key repo rate three times since Rajan took over as Governor in September.

After meeting Jaitley last week, Rajan had said fighting price increases is a priority and the central bank has always maintained a balance between the need to check inflation and prop up growth.

 

Source: economictimes

 

 

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