India Monetary Policy

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India: Reserve bank leaves interest rates unchanged in December

December 2, 2014

The Indian Central Bank (RBI) decided to maintain interest rates unchanged at its last scheduled monetary policy of 2014. Monetary authorities left the repurchase rate unchanged at 8.00% on 2 December, which was a decision widely expected by the markets. This was fifth consecutive meeting in which the Bank refrained from moving interest rates.

The RBI stated that the global economy has shown signs of deceleration since its fourth bi-monthly monetary policy review, which took place in September. However, the Bank recognized that the recent sharp fall in global oil prices will have, “a net positive impact on global growth.” Moreover, the Bank indicated that economic growth in India did lose momentum in the July–September period (the second quarter of FY 2014/2015) and is likely to remain subdued in the following quarter, mainly due to a deterioration in industrial production as well as to a an uneven monsoon.

Regarding consumer price developments, the RBI stated that inflation has decelerated sharply since September, which reflected, “transitory factors such as favorable base effects and the usual softening of fruits and vegetable prices that occurs during this time of the year.” Monetary authorities pointed out that, with CPI inflation looking increasingly likely to fall below both the 8.0% target that the Central Bank set for January 2015 and the 6.0% target set for January 2016, the RBI said that, “[a] change in the monetary policy stance at the current juncture is premature. 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.”

The RBI concluded that it will retain its FY 2014/2015 projection for GDP growth of 5.5%, within a likely range of 5.0% to 6.0%. For FY 2015/2016 the Bank expects the economy to expand 6.3%. The Central Bank underlined that, due lower global commodity prices, particularly oil prices, it expects CPI inflation to average 6.0% in FY 2014/2015 and to hover around 6.0% over the next 12 months. The next monetary policy meeting will be held on 3 February 2015.

FocusEconomics panelists project that the repurchase rate will average 7.89% at the end of FY 2014/2015. For FY 2015/2016, panelists see the repurchase rate ending the year at 7.64%.


Author:, Senior Economist

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India Monetary Policy December 2014

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


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