India: Central Bank leaves monetary policy rate on hold
April 1, 2014
At its 1 April monetary policy meeting, the Reserve Bank of India (RBI) decided to leave the repurchase rate unchanged at 8.00%, in line with market expectations. In addition, the reverse repo rate remained at 7.00% and the marginal standing facility rate at 9.00%.
The RBI stated that GDP growth continued to be modest in the third quarter of FY 2013/14, with decreasing industrial production dragging down economic activity. Moreover, this is having a negative impact on consumption of durable goods and investment spending.
The Bank said that the sharper than expected fall in vegetable prices has enabled a sizable drop in consumer price inflation (CPI). The RBI expects CPI inflation to moderate in the coming months due to a favorable base effect related to high inflation between June and November 2013. However, the Bank cautioned that inflation could rise again due to a “less-than-normal” monsoon and uncertainty regarding governmental support for agricultural prices and other administered prices. The RBI reiterated that it remains committed to lower inflation to 8.0% by January 2015 and 6.0% by January 2016.
In an accompanying document, the monetary authority officially announced that the consumer price index will be the new “key measure” for inflation, following the recommendations made by the Expert Committee to Revise and Strengthen the Monetary Policy Framework. Following the recommendations of a different group of experts, the High Level Advisory Committee, the RBI granted two new bank licenses on 2 April. The two new groups will be the first new banks in India since 2004. With this decision, monetary authorities seek to, “expand the variety and efficiency of players in the banking system while maintaining financial stability.”
FocusEconomics panelists project that the repurchase rate will average 7.58% at the end of fiscal year 2014/2015. For fiscal year 2015/2016, panelists see the repurchase rate ending at 7.44%.