Reserve Bank of India Does Not Change Key Policy Rates
The Reserve Bank of India (RBI) has not made any changes to the interest rates on key policies as expected. The RBI has decided to maintain the policy repo rate under liquidity adjustment fund at 8.0 percent itself. This was done keeping in mind the current and evolving macroeconomic situation in the country.
The RBI has also kept the cash reserve ratio (CRR) of the scheduled banks at the old 4.0 percent of the net demand and time liabilities NDTL). The apex bank of the country has also said that it will carry on to offer liquidity under overnight repos at the same 0.25 percent of bank wise NDTL that was prevailing earlier at the LAF repo rate. The liquidity of the 7 days and 14 days repos of up to 0.75 percent of NDTL of the banking systems through auctions will also be followed as it is. The daily one day term repos and reverse repos to smoothen the liquidity will also be continued by the RBI for the time being.
Due to these decisions taken by the apex bank, the RBI, the reverse repo rate under the liquidity adjustment facility will remain perched at 7.0 percent and the bank rate along with the Marginal Standing Facility (MSF) will stand at 9.0 percent.
The RBI said that, “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 percent. 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.”
RBI feels that the key uncertainty is the stability of this upturn. The outcome of the Northeast monsoon will determine the outcome of the price pressures relating to pulses, cereals and oilseeds. RBI said that one can expect some firming up of the prices considering the performance of the Northeast monsoon so far and the shortfall that is expected for the kharif production.
The softening of the international commodity prices in particular the crude oil prices and the reasonable stability of the rupee in the foreign exchange market mean that the imported inflation in retreating and easing out. The central forecast for the CPI inflation is also revised down to 6 percent for March 2015.