RBI Monetary Policy: Rates kept on hold

The RBI kept the key interest rate unchanged at 8%. Repo rate, the rate at which the RBI lends to banks, remains unchanged at 8%.

April 01, 2014 11:07 IST | India Infoline News Service
The Reserve Bank of India (RBI) announced its first Bi-monthly Monetary Policy 2014-15 today. The RBI kept the key interest rate unchanged at 8%. Repo rate, the rate at which the RBI lends to banks, remains unchanged at 8%.

Consequently, the reverse repo—the rate which the RBI pays banks for depositing excess funds—rates remain unchanged 7%.

The cash reserve ratio—the proportion of deposits to be kept with RBI—remains unchanged at 4%. The marginal standing facility (MSF) rate and the Bank Rate at 9.0 per cent.

The annual rate of inflation, based on the monthly wholesale price index, stood at 4.68% in February, while retail inflation was at a 25-month low of 8.1%, according to the government data.

Dr Rajan, who took charge as Governor of the apex bank last September, raised the rates during his first policy announcement, rightly foreseeing a pressure on the inflation front. He increased it again for a third time since he took charge, in January. In its third quarter review of monetary policy, the RBI raised the key repo rate by 0.25% to 8% in January in a bid to curb inflation.
Highlights of RBI policy
  • Targets CPI inflation at 6% by 2016
  • Lifts cap on valuations of overseas FDI acquisition
  • Targets 8% CPI inflation by January
  • Sees FY15 GDP growth at 5.5% vs 5.6% earlier
  • Expects CAD at 2% of GDP in FY14
  • Pegs FY15 CAD below 2.4% of GDP
  • Headline inflation may bottom out in Oct-Dec
  • Sees GDP up 5% -6% in FY15
  • Adverse monsoon outcome is a risk to inflation
  • Policy rates on hold to allow past actions to take effect
  • Critical to look through any transient effect on inflation
  • Policy stand will completely focus on disinflation path
  • To work to give more bank licences regularly
  • To take steps for early NPA recognition and resolution
  • Mulling design changes to inflation index bond
  • Further softening in food prices unlikely
  • Policy rate is set approximately right now
  • To reduce access ot overnight repos under LAF
  • To issue bank licences faily after EC approval
  • Market participating stable government
  • RBI tweaks FII norms
  • For FY15, NBFC overhaul underway
  • Average WPI estimated at 5.8%
  • Easing of supply bottlenecks to growth
  • Industrial activity continues to be a drag on economy
  • RBI intends to provide sufficent liquidity for banking system
  • Have responded to EC query on bank licences
  • Scope exits to cover partial bank licences to full
  • Core CPI is still sticky
  • Strong budget would put India firmly on fiscal consolidation path 
  • Have to be prepared for turmoil if any from Election outcome
  • Plan differentiated bank licences in next few month
  • Market anticipating stable govt and rapid policy action
  • Better if banks themselves decide on merger
  • Not trying to establish any ruppee level

Read more:
What is CRR, repo and reverse repo rate?

How CRR and repo rates help impact liquidity

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