RBI’s mid-quarter monetary policy reveals no change on key policy rates
Inflation is high and merit is in waiting for more data
The move is considered as a shrewd move by the RBI governor Raghuram Rajan who said that the current inflation was too high but the central bank was ready to wait for more data.
Today the RBI kept the repo rate unchanged at 7.75% and same treatment was given to cash reserve ratio which remained 4%.
The Reserve bank stated that it would wait for more data before taking policy action. Rajan said, “Our reading is significant fall in vegetable prices at both wholesale and retail level.”
The decision of keeping the rates unchanged will be a respite for the industry and retail borrowers in specific as the markets had expected another 25 bps hike in the short-term lending rate.
The Reserve Bank said it will take “calibrated action” in the future, based on inflationary trends and action by the US Federal Reserve.
RBI also stated that if expected softening of food inflation does not materialize, it would act, including on off-policy dates. The status quo decision came as a surprise as only last week the RBI had pulled up banks for not helping it in monetary policy transmission.
Since taking over as the RBI chief in September, Rajan had increased the key rate by 0.50 per cent in two installments.
Rajan said that they were trying to calibrate monetary policy to primary target inflation in an environment of weak economy.
Shifting his stance to promote growth from inflation management, Rajan said continuing weakness in growth was the main driver of his policy action.
He also stated that RBI’s sense of economic growth was below potential at present position. Thus Rajan stated that the growth in second half of current fiscal to be stronger on expansion in agriculture and exports and stalled projects coming on stream.