Tuesday, 7 June 2016

RBI hits pause button on rate cuts

The Reserve Bank of India has refrained from lowering policy rates in its second bi-monthly monetary policy review on Tuesday as it is monitoring the progress of the monsoon rains for cues over near-term inflationary trend in Asia’s third biggest economy.

As expected, the central bank retained the repo rate at 6.5 per cent after cutting it by 25 basis points in its April meeting. Banks' cash reserve ratio or CRR, the ratio of net demand and time liabilities kept with RBI, has also been kept static at 4 per cent.

RBI has cut the policy rate by nearly 150 basis points since January 2014 when it stood at 8 per cent.

The RBI’s decision came in against a backdrop of higher retail inflation in April, prospect of the interest rate hike by the Fed later this month and on the timely outburst of the monsoons.

The country’s consumer inflation, the RBI’s benchmark inflation gauge, accelerated to 5.39 per cent in April 2016 from 4.83 per cent in March 2016, leaving lesser room for a further interest rate cut in the near-term. Despite that, RBI has retained the inflation projection at 5 per cent announced in the April policy statement, though with an upside bias.

Further, it is hoping that an above-normal monsoon may boost agricultural output and keep a lid on food prices.

The RBI is also weighing the impact of heightened global economic uncertainties including the lack of clarity over the next US Federal Reserve interest rate hike and a possibility of Brexit - events which may risk capital outflows from the emerging markets.

The central bank warned that while inflation risks were on the upside, it retained its forecast for India’s GDP growth for the current financial year at 7.6 per cent.

Going forward, RBI expects demand conditions to improve as consumer confidence is seen rising on improving expectations of employment and spending, with rural demand aided by a stronger monsoon. 

1 comment:

  1. RBI(Reserve Bank Of India) is the central bank of India and governs all the economic activities of the country. It keeps on modifying its policies timely as per economic condition requirements. For stock market players also it is necessary to check it before and after policy modification effects. For similar updates you can use services of epic research on various platforms online.