India Monetary Policy


Central Bank remains on hold

At its last policy meeting on 18 December, the Reserve Bank of India (RBI) left the repo rate unchanged at 8.00% and the reverse repo rate at 7.00% for a fifth consecutive time, in a decision widely expected by the market. The Bank also left the cash reserve ratio unchanged at 4.25%, a decision that surprised the market, which had anticipated a 25 basis-point cut. The Central Bank reiterated that global economic activity remains sluggish, although some signs of stabilization are emerging. At a domestic level, the Bank stated that although GDP slowed down somewhat in the second quarter of the current fiscal year, there are signs of a moderate pick-up in economic activity in Q3. Regarding price developments, the Bank noted that headline inflation has remained below the RBI's projected levels in the past two months and that this pattern should continue into the next fiscal year which starts in April, while adding that the recent decline witnessed in core inflation has been "comforting". Against this backdrop, the Central Bank maintained a dovish tone regarding its future policy decisions, stating that "monetary policy has to increasingly shift focus and respond to the threats to growth from this point onwards", while reiterating its intention of starting to ease monetary conditions in the January-March period. The next policy meeting is scheduled for 29 January.


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India Monetary Policy Chart

India Monetary Policy December 2012

Note: Reserve Bank of India (RBI) Repo Rate in %.
Source: Reserve Bank of India (RBI).

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