India Monetary Policy


India: Central Bank remains on hold

March 15, 2012

At its latest policy meeting on 15 March, the Reserve Bank of India (RBI) left its key interest rates unchanged for the third consecutive meeting, with the repo rate thus remaining at 8.50% and the reverse repo rate at 7.50%, in a decision widely expected by the market. The Bank also left the cash reserve ratio unchanged at 4.75%, after having it lowered by 75 basis points in a surprise move on 8 March. According to the Bank, although the global macroeconomic situation has improved, ?a credible solution to the sovereign debt problem in Europe is yet to emerge, and sluggish global economic activity, uncertainty in the euro area and rising crude oil prices will hamper growth prospects for emerging and developing economies?. The RBI stated that most indicators suggest that the Indian economy is slowing down and that inflation has broadly evolved along the projected trajectory so far. Monetary authorities, however, added that ?upside risks to inflation have increased from the recent surge in oil prices, fiscal slippage and rupee depreciation?. According to the RBI, the recent cuts in the reserve requirement ratio aim at addressing a persistent structural liquidity deficit in the banking system. The Bank maintained a dovish stance, stating that ?no further tightening is required and that future actions will be towards lowering interest rates?, while adding that ?inflation risks remain and will influence both the timing and the magnitude of future rate actions.?


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