| Log in

RBI keeps rates unchanged, signals possible rate cut in early 2015

02 December, 2014

Raghuram Rajan-led RBI has once again stuck to its cautious stance on loosening the monetary policy by retaining the key policy rates in its bi-monthly review on Tuesday but hinted at a possible rate cut early next year even outside the two monthly review cycle.

The sharp fall in global crude oil has sunk inflation in the country, which had led the street to expect a rate cut.

The monetary authority retained the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8 per cent and the cash reserve ratio (CRR) of scheduled banks unchanged at 4 per cent of net demand and time liabilities (NDTL).

It also said it will continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 7-day and 14-day term repos of up to 0.75 per cent of NDTL of the banking system through auctions; and also continue with daily one-day term repos and reverse repos to smooth liquidity.

Consequently, the reverse repo rate under the LAF will remain unchanged at 7 per cent, and the marginal standing facility (MSF) rate and the bank rate at 9 per cent.

RBI acknowledged the softening inflation rates in the economy but added that the favourable base effect that is driving down headline inflation will likely dissipate and inflation for December (data release in mid-January) may well rise above current levels.

“The key uncertainty is the durability of this upturn,” according to RBI.

The monetary authority said the full outcome of the north-east monsoon will determine the intensity of price pressures relating to cereals, oilseeds and pulses, but it is reasonable to expect some firming up of these prices in view of the monsoon’s performance so far and the shortfall estimated for kharif production. It added that risks from imported inflation appear to be retreating, given the softening of international commodity prices, especially crude, and reasonable stability in the foreign exchange market.

It revised down the central forecast for consumer inflation to 6 per cent for March 2015 and said over the next 12-month period, inflation is expected to retain some momentum and hover around 6 per cent, except for seasonal movements, as the disinflation momentum works through.

“A change in the monetary policy stance at the current juncture is premature. However, 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,”

Referring to the economy, RBI noted that while activity appears to have lost some momentum in Q2, probably extending into Q3, conditions congenial for a turnaround – the softening of inflation; easing of commodity prices and input costs; comfortable liquidity conditions; and rising business confidence as well as purchasing activity – are gathering.

“These conditions could enable a pick-up in Q4 if coordinated policy efforts fructify in dispelling the drag on the economy emanating from structural constraints,” it said.

But it has retained the central estimate of projected growth for 2014-15 at 5.5 per cent, with a gradual pick-up in momentum through 2015-16 on the assumption of a normal monsoon and no adverse supply/financial shocks.

The sixth bi-monthly monetary policy statement is scheduled on February 3, 2015.

(Edited by Joby Puthuparampil Johnson)


Leave Your Comment
RBI remains hawkish, raises repo rate by 25 bps to 7.75%

RBI remains hawkish, raises repo rate by 25 bps to 7.75%

TEAM VCC 4 years ago
The Indian central bank continued its hawkish stance on fighting inflation with...
RBI surprises with 25 bps cut in interest rate

RBI surprises with 25 bps cut in interest rate

TEAM VCC 3 years ago
Raghuram Rajan-led RBI, which had been cautious in loosening its monetary policy...
RBI leaves interest rates unchanged

RBI leaves interest rates unchanged

TEAM VCC 4 years ago
The Reserve Bank of India (RBI) has maintained status quo on the interest rates...
No Comments

RBI keeps rates unchanged, signals possible rate cut in early 2015

Powered by WordPress.com VIP