While keeping key rates unchanged, the RBI said given the wide bands of uncertainty and weak state of the economy there is merit in waiting for more data
The Reserve Bank of India (RBI), in its mid-quarter credit policy review has kept repo, reverse repo, cash reserve ratio (CRR) and bank rate unchanged. The central bank said the policy decision is a close one as current inflation is too high. "However, given the wide bands of uncertainty surrounding the short term path of inflation from its high current levels, and given the weak state of the economy, the inadvisability of overly reactive policy action, as well as the long lags with which monetary policy works, there is merit in waiting for more data to reduce uncertainty," RBI said in the policy statement.
According to RBI, there are obvious risks to waiting for more data, including the possibility that tapering of quantitative easing by the US Fed may disrupt external markets and that the Reserve Bank may be perceived to be soft on inflation.
"Even though the Reserve Bank maintains status quo today, it can help guide market expectations through a clearer description of its policy reaction function: if the expected softening of food inflation does not materialise and translate into a significant reduction in headline inflation in the next round of data releases, or if inflation excluding food and fuel does not fall, the Reserve Bank will act, including on off-policy dates if warranted, so that inflation expectations stabilise and an environment conducive to sustainable growth takes hold," the central bank said.
With no change in key policy rates, the repo rate (the rate at which the RBI lends money to banks) remains at 7.75%. Similarly reverse repo rate (the rate at which the RBI borrows from banks), CRR, and bank rate remains at 6.75%, 4.00% and 8.75%, respectively.
Repo Rate.......................7.75%
Reverse Repo Rate..........6.75%
CRR.................................4.00%
Bank Rate......................8.75%
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