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Monetary policy: RBI maintains status quo - Views on News from Equitymaster
 
 
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  • Dec 18, 2012

    Monetary policy: RBI maintains status quo

    Maintaining the status quo is something the Reserve Bank of India (RBI) knows all too well. The Indian central kept key policy rates unchanged during the latest monetary policy review citing stubborn consumer price inflation.

    The central bank kept the cash reserve ratio (CRR) for banks at 4.25% and the repo rate unchanged at 8%.

    Headline inflation came down to 7.2% in November, but this wasn't enough to impress the governor, D Subbarao. He maintains that risks to inflation still remain but emphasised the need to shift increasingly towards growth. GDP growth in 2QFY13 came in at 5.3%, which was marginally lower than 5.5% seen in 1QFY13. However, there are some indications of activity firming up next quarter. Industrial activity has also seen some pick up of late. The RBI governor also applauded the government's recent push towards reform which will contribute towards growth going forward. Lower liquidity continues in the system on account of slower deposit growth. Non-food credit growth however rose above the forecasted 16% levels suggesting some pick-up in economic activity.

    The RBI has been facing pressure from the industry and the government to cut rates. A monetary cut at this rate would help improve sentiments and help revive growth. However, all hope is not lost. There is an indication that rates may get cut January onwards. The Reserve Bank is monitoring the growth-inflation dynamic. It will update the numerical assessment of growth and inflation projections for FY13 as part of the third quarter review in January 2013. The slowdown seems to have bottomed out and core inflation is moderating. A rate cut in early 2013 will just be the icing on the cake for India Inc.

     

     

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