The Reserve Bank of India (RBI), as expected, left key interest rates unchanged in its first bi-monthly monetary policy review Tuesday and said near-term tightening is not expected if inflation continues to ease.
The repo rate, or the interest that banks pay when they borrow money from the RBI to meet their short-term fund requirements, has been left unchanged at 8 percent.
The reverse repo rate, or the interest that the RBI pays to commercial banks when they park their surplus short-term funds with the central bank, has been adjusted to 7 percent.
The Cash Reserve Ratio (CRR) is left unchanged at 4 percent. The marginal standing facility rate and the Bank Rate is also kept unchanged at 9 percent.
The status quo in key policy rates mean the equated monthly installments (EMIs) on home, auto and other loans would remain unchanged as these rates determine lending and borrowing rates of the commercial banks.
In its previous policy statement announced Jan 28, the central bank had hiked short-term lending and borrowing rates by 0.25 percent.
The central bank’s action is on the expected lines as most analysts predicted a status quo considering the macro-economic data and election.
“The only thing that is surprising in the monetary policy today is lack of surprises,” Governor Raghuram Rajan said while announcing the policy statement.
Rajan said the central bank’s policy is firmly focused on curbing inflation.
On the back of softening in food and fuel price rise, wholesale price-based inflation eased to 4.68 percent in February, while retail inflation, based on the Consumer Price Index (CPI) declined to a 25-month low of 8.10 percent.
“The Reserve Bank’s policy stance will be firmly focussed on keeping the economy on a disinflationary glide path that is intended to hit 8 percent CPI inflation by January 2015 and 6 percent by January 2016,” the governor said.
“At the current juncture, it is appropriate to hold the policy rate, while allowing the rate increases undertaken during September 2013-January 2014 to work their way through the economy, he said.
“Furthermore, if inflation continues along the intended glide path, further policy tightening in the near term is not anticipated at this juncture,” Rajan added.
This is the first bi-monthly policy review of monetary policy. On the recommendations of a panel headed by RBI Deputy Governor Urjit Patel, the central bank has now decided to shift to a system of announcing policy statements once every two months, instead of 45 days that was in practice for the past few years.
The next bi-monthly monetary policy statement will be announced June 3, 2014.
Meanwhile, industries pitched for rate cuts saying it is essential to uplift business sentiments.
“Industrial growth remains sluggish. The improvement in January IIP numbers is meagre and there are no clear signs of growth bottoming out. Going ahead, it will be vital to strengthen the sync between government actions and RBI policy,” said Sidharth Birla, president, Federation of Indian Chambers of Commerce and Industry (FICCI).
“FICCI feels tweaking policy rates downwards would help lift business sentiments,” Birla said.
Commenting on the policy, Chandrajit Banerjee, director general, Confederation of Indian Industry (CII) said the RBI action is as per market expectations.
“However, at a time when growth impulses remain weak and WPI inflation has been on the declining trajectory for the last nine months, the RBI should have taken this opportunity to announce a cut in policy rates which would stimulate demand and kick start the investment cycle,” Banerjee said.