India Monetary Policy


India: Reserve Bank holds interest rates unchanged

April 8, 2015

In a scheduled meeting on 7 April, the Reserve Bank of India (RBI) decided to keep the repurchase rate unchanged at 7.50%. The move was expected by market analysts and came after the Bank’s decision to cut the repurchase rate at an unscheduled meeting on 4 March. In order to maintain the corridor at which monetary policy rates move, the Bank also decided to leave the marginal standing facility rate (Bank rate) unchanged at 8.50% and the reverse repurchase rate unchanged at 6.50%.

Commenting on the decision, the Central Bank recognized that despite below-target inflation in January, inflationary pressures are evolving as anticipated. The Central Bank pointed out that a weak monsoon season presents an upside risk to inflation going forward; however, this risk appears to be balanced by downward pressures from global prices. The monetary authorities explained that incoming data will provide greater clarity on the inflation outlook.

Regarding the recent Monetary Policy Framework Agreement signed between the Central Bank and the Government of India, the Bank reiterated its commitment to reduce inflation gradually and sustainably. The Central Bank is targeting inflation of 6.0% by January next year and inflation of 4.0% by the end of 2017-2018.

Regarding India’s economy, the Central Bank commented that the outlook is improving steadily. Many of the initiatives contained in the Union Budget should boost confidence and facilitate growth. Regarding the recent revision to GDP statistics, the Central Bank pointed out that the new estimates present a picture of a robust acceleration in the economy. However, other economic indicators suggest that these estimates may be downwardly revised when more information for Q4 is available. Further, uncertainty regarding the monsoon presents a downside risk to the economic outlook. Against this backdrop, the Central Bank expects growth of 7.8% for fiscal year 2015/2016 and growth of 7.5% for fiscal year 2014/2015.

In conclusion, the Central Bank summarized that the accommodative stance of monetary policy will remain, however, any decisions will depend on new data. The Bank added that the effects of weather on food prices will be monitored along with seasonal and base effects. In addition, the Bank explained that, “the Reserve Bank will watch for signs of normalization of the US monetary policy, though it anticipates India is better buffered against likely volatility than in the past.”

FocusEconomics Consensus Forecast panelists are still taking these developments into account and project that the repurchase rate will average 7.10% at the end of FY 2015/2016. For FY 2016/2017, panelists see the repurchase rate ending the year at 7.00%.

Author: Angela Bouzanis, Senior Economist

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India Monetary Policy Chart

India Monetary Policy April 2015

Note: Marginal Standing Facility (MSF) Rate, Repo Rate and Reverse Repo Rate in %.
Source: Reserve Bank of India (RBI).

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