RBI shies away from rate cut this time

RBI shies away from rate cut this time

Says inflation easing target in sight

RBI shies away from rate cut this time
Reserve Bank of India (RBI) Governor Raghuram Rajan on Tuesday decided not to tinker with rates in the fifth bi-monthly monetary policy. Though the central bank kept rates unchanged, it did indicate the room for further easing if inflation targets are achieved.

“RBI will use the space for further accommodation, when available, while keeping the economy anchored to the projected disinflation path that should take inflation down to five per cent by March 2017," RBI said. In the bi-monthly monetary policy statement of September, the Reserve Bank assessed that the inflation target for January 2016 at six per cent, was within reach. Accordingly, it front-loaded its policy action in response to weak domestic and global demand that were holding back investment, while noting that structural reforms and productivity improvements would continue to provide the main impetus for sustainable growth,” RBI said.

Since then, inflation has turned up as anticipated, and is expected to rise further until December before plateauing. Although the seasonal moderation in prices of vegetables and fruits is expected to provide some respite, the El Nino induced shortening of winter may limit this effect. The early indications of rabi sowing, together with low reservoir levels, suggest that astute supply management by the Centre, including close coordination with state governments, is necessary to minimise any shortfall in the rabi crop. While oil prices, barring geopolitical shocks, are expected to remain benign for a few quarters more, the uptick of CPI inflation excluding food and fuel for two months in succession warrants vigilance. Taking all this into consideration, inflation is expected to broadly follow the path set out in the September review with risks slightly to the downside, RBI added.

The repo rate now stands at 6.75 per cent while the cash reserve ratio is now at four per cent. The central bank also maintained its growth projections as it sees a subdued outlook for agriculture.
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