However, it said it would cut the ceiling on bonds that must be held-to-maturity from the current 24 percent to 22 percent in stages starting in the bi-weekly cycle beginning in Jan. 10, 2015. It expects to complete the process by September 2015.
"For the near-term objective, the risks around the baseline path of inflation are broadly balanced, though with a slant to the downside. However, the undershooting of the objective may be temporary because of base effects. Turning to the medium-term objective (6 per cent by January 2016) the balance of risks is still to the upside, though somewhat lower than in the last policy statement," said Raghuram Rajan.
"This continues to warrant policy preparedness to contain pressures if the risks materialise. Therefore, the future policy stance will be influenced by the Reserve Bank's projections of inflation relative to the medium term objective (6 per cent by January 2016), while being contingent on incoming data," Rajan explained.
According to RBI, the momentum of activity in all sectors of the economy is yet to stabilize. "Agriculture should shed the effects of recent shocks and pick up in Q4 of 2014-15. Industrial activity will await improvement in the business environment and the resumption of consumption and investment demand before gaining sustained speed. Post-monsoon revival in construction activity and the likely strengthening of momentum in business and financial services should sustain the recent signs of expansion in the services sector," RBI said in its statement.
"The key to a turnaround in the growth path of the economy in the second half of the year is a revival in investment activity - in greenfield as well as brownfield stalled projects - supported by fiscal consolidation, stronger export performance and sustained disinflation. With expectations of these conditions remaining broadly unchanged, the projection of growth for 2014-15 is retained at 5.5 per cent within a range of 5 to 6 per cent around this central estimate. The quarterly growth path may slow mildly in Q2 and Q3 before recovering in Q4," the statement added.
The Governor also said the final guidelines on small banks and payments banks will be issued by end-November, while the final norms with regard to the changes in the regulatory framework for NBFCs will be introduced by end-October.
Rajan reduced the liquidity provided under the export credit refinance (ECR) facility from 32 per cent of eligible export credit outstanding to 15 per cent with effect from October 10.
RBI, however, continued to provide liquidity under overnight repo at 0.25 per cent at the LAF repo rate and liquidity under 7-day and 14-day term repos of up to 0.75 per cent through auctions.
Inflation as measured by the consumer price index in August slowed to 7.80% from 7.96% in July. Wholesale price index-based inflation also fell in August--to 3.47%, near a five-year low.
Rajan, who has raised rates thrice since last September, has been adamant that the back of inflation needs to be broken if the country has to get back to the path of sustainable, high economic growth.
(With inputs from PTI & Reuters)
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