RBI: No Rate Cut
RBI: No Rate Cut
Over the weeks, there has been much speculation about whether RBI would go in for a rate cut or not. But the question has finally been answered. As was expected by a majority, the rate cut did not change.
Rate Cut Remains 8%
Keeping in mind an assessment of the current as well as growing macroeconomic situation, the RBI has aimed at keeping the policy repo rate under the LAF or liquidity adjustment facility unchanged presently at 8%. The RBI also decided to keep the CRR or cash reserve ratio of scheduled banks unchanged at 4% of net demand and time liabilities or NDTL. It has also announced that it will be consistent in providing liquidity under overnight repos at 0.25 percent of the benches NDTL at the LAF repo rate and liquidity under the 7 as well as 14 day term repos of around 0.75% of NDTL of the banking system via auctions.
RBI has also made the decision to continue with daily one day term repos as well as reverse repos for smoothing liquidity. As per these decisions, the reverse repo rate under the LAF will not change at 7% and the marginal standing facility and bank rate will continue to be pegged at 9%.
“The headline inflation has been receding steadily, and current readings are below the January 2015 target of 8 per cent as well as the January 2016 target of 6 per cent,'' the RBI said in a statement and it also mentioned “The inflation reading for November, which will become available by mid-December, is expected to show a further softening. Thereafter, however, the favourable base effect that is driving down headline inflation will likely dissipate and inflation for December may well rise above current levels.”
“The key uncertainty is the durability of this upturn,'' the central bank said. “The full outcome of the north-east monsoon will determine the intensity of price pressures relating to cereals, oilseeds and pulses. However, 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 pointed out.
“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,'' the RBI also indicated.
Central Forecase for CPI Inflation Revised
As per the decision to continue with an unchanged rate cut, central forecast for CPI information has been revised to 6% for March 2015. The RBI also said that it may ease the monetary policy early in the next year given that inflationary pressures do not come about the fiscal deficit is controlled by the government. RBI has said inflation needs to be contained. "What again and again we have seen in India, and outside India also, is that the way to sustainable growth is to have moderate inflation," Rajan told at a media news conference. India also needs faster growth for its growing number of young people to join the workforce. The RBI has targeted CPI at 6 percent for January 2016, and the central bank said risks to the target "appear evenly balanced under the current policy stance.” If the target was achieved, the RBI would then aim for longer term inflation target of 4%.
