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Updated: December 17, 2011 01:30 IST

RBI leaves rates unchanged

Special Correspondent
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The RBI has left its policy rate unchanged at a three-year high of 8.5 per cent, noting that inflation was still above the “comfort level”. File photo
The Hindu The RBI has left its policy rate unchanged at a three-year high of 8.5 per cent, noting that inflation was still above the “comfort level”. File photo

The Reserve Bank of India on Friday left its policy rate unchanged at a three-year high of 8.5 per cent, noting that inflation was still above the “comfort level” but expected to abate in the coming months.

The pause comes after 13 consecutive rate hikes since March 2010.

Sending out a clear signal to corporate India and the markets about a possible reversal of its stance on raising rates, the RBI said: “From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth.”

The central bank noted that while inflation remained on the projected trajectory, downside risks to growth clearly increased. It reiterated its statement in the earlier policy in October that “further rate hikes might not be warranted” as the growth momentum was moderating.

Retaining its option to raise rates again if inflationary expectations persist, the RBI said the timing and magnitude of further action would depend on how things panned out on the inflation and rupee fronts.

“It must be emphasised that inflation risks remain high and inflation could quickly recur as a result of both supply and demand forces … also, the rupee remains under stress,” the policy statement said.

The central bank noted the decline in the overall economic scenario with GDP growth slowing to 6.9 per cent in the second quarter from 7.7 per cent in the first, and key deficit indicators worsening mainly due to higher expenditure and lower revenues.

Noting that liquidity conditions were tight, consistent with the policy intent, the RBI said it would conduct open market operations as and when it felt the need for it.

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