• OUTLOOK ARENA
  • VIEWS ON NEWS
  • DECEMBER 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.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407