Reserve Bank keeps policy rates unchanged

Continuing the effort to fight “persisting inflation” and inflationary pressures, the Reserve Bank of India (RBI) Governor Raghuram Rajan, on Tuesday, maintained the policy rates at the current levels.

The central bank kept the short-term policy indicative rate (Repo rate) unchanged at 8 per cent while keeping the Cash Reserve Ratio (CRR) at 4 per cent.

The repo rate is the rate at which the central bank lends money to banks. The CRR is the portion of total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank.

“With international crude prices softening and relative stability in the foreign exchange market, some upside risks to inflation are receding. Yet, there are risks from food price shocks as the full effects of the monsoon’s passage unfold, and from geo-political developments that could materialise rapidly,” said Dr. Rajan, while addressing a press conference to announce the fourth bi-monthly monetary policy here.

Medium-term objective

Turning to the medium-term objective — inflation target of 6 per cent by January 2016 — Dr. Rajan said the balance of risks was still to the upside, though somewhat lower than in the last policy statement.

This continued to warrant policy preparedness to contain pressures if the risks materialised.

Therefore, he said, “policy stance will be influenced by the Reserve Bank’s projections of inflation relative to the medium-term objective (6 per cent by January 2016), while being contingent on incoming data.”

“Clearly”, said Dr. Rajan, “there is more confidence in achieving 8 per cent target (by January 2015) than to achieve than the 6 per cent target. Policy will depend on data and broadly we have reiterated the guidance from the August policy but said that the data has been better since then given good monsoons.”

Post-monsoon revival in construction activity and the likely strengthening of momentum in business and financial services should sustain the recent signs of expansion in the services sector. Dr. Rajan said that in pursuance of the Urjit R. Patel Committee’s recommendation to move away from sector-specific refinance, the access to the Export Credit Refinance (ECR) was is being brought down to 15 per cent from 32 per cent of the eligible export credit, “thus continuing to give banks room for manoeuvre.

“This will be in effect from October 10.”

He also said that with liquidity conditions easing, the recourse to ECR hads fallen off substantially to about 10 per cent of the outstanding export credit eligible for refinance.

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Printable version | Jan 25, 2022 3:50:35 AM |

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