India's central bank keeps rates steady
2014-04-01 11:46:23
The Reserve Bank of India announced its decision to leave its key interest rate unchanged on Tuesday and signaled that further policy tightening in the near term is unlikely if inflation continues along the intended glide path.
The repo rate, the rate at which the Reserve Bank of India lends to banks, was maintained at 8.00 percent. Governor Raghuram Rajan last raised the key rates by 25 basis points in January.
The RBI retained its reverse repo rate at 7.00 percent. The reverse repo rate is the rate at which the central bank accepts deposits from banks. The outcome of the meeting came in line with economists' expectations.
The central bank also decided to keep the cash reserve ratio unchanged at 4.00 percent.
The bank has so far increased the key rates by a cumulative 75 basis points since September. At the current juncture, it is appropriate to hold the policy rate, while allowing the rate increases undertaken during September to January 2014 to work their way through the economy, the RBI said.
The RBI said its policy stance will be firmly focused on keeping the economy on a disinflationary glide path that is intended to hit 8 percent consumer price inflation by January 2015 and 6 percent by January 2016.
In February 2014, wholesale price inflation slowed to a nine-month low of 4.68 percent from 5.05 percent in January. Likewise, consumer price inflation slowed to 8.1 percent in February.
The bank increased the liquidity provided under the 7-day and 14-day term repos to 0.75 percent from 0.50 percent and reduced the liquidity given under overnight repos under the liquidity adjustment facility to 0.25 percent from 0.50 percent.
"The primary objective is to improve the transmission of policy impulses across the interest rate spectrum," the bank said.
The RBI expects real GDP growth to pick up to a range of 5 percent to 6 percent in 2014-15 from a little below 5 percent in 2013-14. Earlier in the day, the Asian Development Bank said it expects India to grow 5.5 percent this year and 6 percent in 2015.
The results of the purchasing managers' survey by Markit released today highlighted a slowdown in India's manufacturing growth as output and new orders grew at weaker rates.
The seasonally adjusted HSBC Purchasing Managers' Index for manufacturing fell to 51.3 in March from 52.5 in February.
"Growth is likely to remain moderate in coming months as fiscal tightening, relatively high corporate leverage, and rising non-performing loans in the banking system pose headwinds to growth," Leif Eskesen, chief economist for India & ASEAN said.