Interest rates will remain high till inflation is down

India Infoline News Service | Mumbai |

Delay in tapering by Federal Reserve made it possible for RBI to cut MSF rate, Kotak Mahindra Old Mutual Life Insurance, said.

The RBI in its Mid-Quarter Review of Monetary Policy 2013-14 statement today kept the CRR (cash reserve ratio) unchanged at 4%, while it hiked the repo rate by 25 bps (basis points) to 7.5% and consequently the reverse repo rate stands at 6.5%.


The central bank has reduced daily CRR requirement to 95% from 99% and maintained MSF (marginal standing facility) rate to 75 bps to 9.5%.


“RBI reduced the MSF and hiked repo rate with the objective to normalise conduct and operations of monetary policy. We believe once supply side measures are in place and food inflation falls, the central bank will ease monetary policy to support growth but till that time policy will remain tight, Kunal Shah, fund manager-debt, Kotak Mahindra Old Mutual Life Insurance, said.


Delay in tapering by Federal Reserve made it possible for RBI to cut MSF rate. However since tapering is inevitable, RBI should continue to use short-term interest rate to stabilise rupee. Interest rates will remain high till inflation restarts its downward trajectory and currency stabilises, Shah added.
 

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