RBI maintains status quo; indicates rate cut in early 2015

Mumbai: While keeping the short term lending (repo) rate unchanged at 8 percent, RBI Governor Raghuram Rajan said that “a change in the monetary policy stance at the current juncture is premature”.Disappointing industry and the government, RBI Tuesday chose not to go for a rate cut for fifth time in a row but held out a promise of a softening stand in the next review due in February.

“However, if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle,” he said.

While industry reacted with disappointment saying the RBI has not been accommodating, while the government, which has also been pitching for a rate cut, said it looked forward to the central bank supporting the revival of growth and employment.

The repo rate continues to be at 8 percent while the cash reserve ratio has also been retained at 4 percent. Following the policy announcement, most of the bankers said that there will be no change in lending and deposit rates for now.

Asserting that RBI is not against growth but wants the strongest possible growth while keeping inflation under check, a combative Rajan said, “How do you bring these two together? By bringing inflation down. Otherwise, we are going to have this high inflation and low growth scenario again and again.

The GDP grew at 5.3 percent in the second quarter of this fiscal as against 5.7 percent in the first quarter.
Following the RBI’s decision, the BSE’s 30-share index Sensex closed at 28,444, down 115.61 points or 0.40 percent.

“Over the next 12-month period, inflation is expected to retain some momentum and hover around 6 percent, except for seasonal movements, as the disinflation momentum works through,” he said after his bi-monthly review of the monetary policy.

Source: Zee news