“That is what we are looking for to see how much room we have to cut rate“, Rajan told CNBC Awaaz. The repo rate will continue to be at 7.25 percent and the cash reserve ratio will remain at 4 percent. On Tuesday, Rajan put to rest all speculations and said that the RBI believed in institutionalising the process of monetary policy was essential.
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Anxious about inflation, but lowers projections: The policy statement shows that the RBI expects inflation to be worrying in the next few months, due to inflation in vegetable-pulses-milk rising. The Governor reminded that the RBI could take monetary actions at any time. “On an assessment of the evolving balance of risks, the projected output growth for 2015-16 has been retained at 7.6%”, he said.
A taxi drives past the front of the Bank of England in London’s financial district after it was announced that UK economy shrank by 0.2% during the last quarter of 2010 on January 25, 2012 in London, England.
India’s central bank policy review is expected to yield little in the way of action on Tuesday, but its statement will be pored over for clues as to whether there is a chance of another interest rate cut this year. “Inflation cannot be a primary consideration for RBI not to cut rate”, the official said, making a strong case for interest rate cut by the RBI tomorrow.
In its monetary policy announced, the Central Bank attributed its decision to the possibility that its counterpart in the US could begin raising interest rates, an anticipation of higher local inflation and the possibility that pace of growth in the domestic economy could speed up in the next few months. It would give the government majority control of a monetary policy committee and review the inflation target every three years, putting it at odds with recommendations from the central bank.
The Governor raised a red flag on the sustained hardening of inflation minus the food and fuel elements.
He, however, warned that the contraction in exports “could become a prolonged drag” on growth going forward. The acceleration in inflation came despite a favourable base effect.
However, after this, the central bank’s aim is to compress it down further to 4 percent in two years.
These include the sharp fall in crude prices since June and the likelihood of this softness persisting in view of the global supply glut and expanding production by Iran.
The RBI, however, is unhappy that commercial banks have delayed reducing lending rates.
“It’s more reasonable to go back to pattern during some time”.
“RBI’s decision to maintain the status quo on policy rates indicates a guarded approach towards monetary easing to restrain inflationary expectations…”, he said.
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Keeping rates unchanged was driven by RBI not wanting to risk inflation from surging, a poor monsoon and a possible increase in interest rates in the US next month.
