JOIN USIndia Inc asks RBI to cut rate before Jan policy
The Reserve Bank of India (RBI) on Tuesday left key policy rates unchanged in its mid quarter (December 2012) monetary policy review, even as it hinted easing of rates in January, 2013 saying with decline in inflation, the focus of monetary policy would shift to removing impediments to growth.
With this status quo in policy action, repo rate stands at 8 per cent, reverse repo at 7 per cent and bank rate at 9 per cent. Repo rate is the rate at which banks borrow money from the central bank. Banks lend to RBI under reverse repo window.
Cash reserve ratio (CRR) or the portion of demand and time deposits that banks keep with the RBI was also remained at 4.25 percent. Although majority of analysts had expected no rate cut in RBI's mid quarter policy review this morning but some were anticipating a reduction in CRR for easing of liquidity situation.
"In view of inflation pressures ebbing, monetary policy has to increasingly shift focus and respond to the threats to growth from this point onwards," RBI Governor Duvvuri Subbarao said in the policy review note.
“Liquidity conditions will be managed with a view to supporting growth as stated in the second quarter review, thereby preparing the ground for further shifting the policy stance to support growth. Overall, recent inflation patterns and projections provide a basis for reinforcing our October guidance about policy easing in the fourth quarter.”
In its second quarter (July-September) policy review, RBI had hinted about rate cut in January, 2013. Recently, the annual rate of inflation, measured by the wholesale price index (WPI), moderated to 7.24 per cent in November compared to 7.45 per cent in October mainly due to softening of prices of vegetables, minerals and fuel.
On domestic growth front, the RBI observed some “indications of a modest firming up of activity” in October-December quarter.
GDP growth in Q2, FY’13 at 5.3 per cent was marginally lower than 5.5 percent in Q1. The finance ministry on Monday pegged GDP growth rate between 5.7 and 5.9 per cent for 2012-13, lower than 7.6 percent budgeted for the year; the full year growth rate is higher than the 5.4 per cent growth posted in April-September, 2012.
The bank added, “Industrial activity rose sharply in October but this is, in large part, due to a low base and festival-related demand which propelled the growth of both consumer durables and non-durables into double digits. Significantly, capital goods production recorded a growth of 7.5 per cent after 13 successive months of decline.”
Chief Economic Advisor Raghuram Rajan said it is good that the RBI sees room for rate cut. “I think its good that RBI sees that there is room to ease. And clearly they are taking a decision keeping in mind that their main job is combating inflation. I look forward to good news in policy (January),” he said.