Monday, 29 September 2014

RBI Keeps Repo Rate Unchanged Citing Inflation Risks - NDTV

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A file photo of RBI Governor Raghuram Rajan

A file photo of RBI Governor Raghuram Rajan




Home and auto loan installments are unlikely to come down with the Reserve Bank today deciding to keep interest rates on hold. The central bank kept the key repo rate unchanged at 8 per cent citing significant upside risk to its medium term inflation target.


The RBI's move was widely expected as Governor Raghuram Rajan has vowed to bring consumer price inflation down to 8 per cent by January 2015 and to 6 per cent a year later.


"We need to reach 6 per cent by 2016... We are reasonably set that we will reach 6 per cent target, but a lot can happen over the next few months... The policy will be data-contingent," Dr Rajan said.


There are signs that upward pressures on consumer prices have begun to wane as consumer price inflation slowed to 7.8 per cent in August, and core inflation, which strips out food and fuel prices, eased to 6.9 per cent.


However, Dr Rajan today said that there is uncertainty about oil prices and even the rupee has been quite strong against a basket of currencies though it has weakened against the dollar.


"The situation is better than August, but there are still risks in achieving the 6 per cent target. We are more confident of achieving the 8 per cent target," he added.


The RBI has kept rates on hold since raising it by 25 basis points (0.25 per cent) in January. The cash reserve ratio also stays at 4 per cent, the central bank said. The RBI also kept the statutory liquidity ratio unchanged. SLR is the minimum bond holding requirements that lenders must set aside, while CRR determines the percentage of bank deposits that must be kept at the central bank.


Economists expect the central bank to cut interest rates only in fiscal year 2015-16 now. The new government seems to be backing Dr Rajan, though his strategy is far less popular with businesses, which want relief from high interest rates, and banks which want to lend more.


India needs far stronger investment if it is to decisively recover from the sub-five percent growth suffered in the past two years, and grow fast enough to provide jobs for the millions of young people entering the labour market.


This requires a benign interest rate regime and low inflation, which will enable corporates to invest and make savings attractive. All the RBI has offered so far this year has been modest measures to make more credit available.


Today, the RBI said it would cut the ceiling on bonds that must be held-to-maturity from the current 24 per cent to 22 per cent in stages starting in the bi-weekly cycle beginning in Jan. 10, 2015. It expects to complete the process by September 2015.


The Sensex and Nifty, which saw some correction post RBI announcement, were back in the green as of 11.20 a.m.


(With inputs from Reuters)



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