The Reserve Bank of India (RBI) kept interest rates unchanged on Monday after cutting them in each of its previous three policy reviews, warning of upward risks to inflation posed by a falling rupee and increases in food prices.
The RBI also called for vigilance over global economic uncertainty, citing the risks of a reversal of capital flows from emerging markets. Such outflows would exacerbate the country's high current account deficit.
Following are highlights from the monetary policy statement:
Policy Measures
Keeps repo rate unchanged at 7.25 percent.
Reverse repo rate stays at 6.25 percent.
Cash reserve ratio unchanged at 4.00 percent.
Marginal Standing Facility rate stays at 8.25 percent.
Bank rate stays at 8.25 percent.
Policy Stance
Only "durable" receding of inflation will open up space for monetary policy to address growth risks.
There are upside risks to inflation on rupee weakness, increases in administered prices.
Need to be vigilant about global uncertainty, rapid shift in risk perceptions, impact on capital flows.
Monetary policy stance to be determined by growth, inflation and balance of payments situation in months ahead.
Current Account
Main challenge is to reduce the current account deficit to a sustainable level.
Evidence suggests a moderation in gold imports could be underway in June.
Perseverance with fiscal consolidation should help in mitigating risks to outlook to fiscal and current account deficits.
Softer global commodity prices, recent steps to dampen gold imports are expected to moderate current account gap in 2013-14.
Inflation, Liquidity
Inflation outlook will be influenced by "concerted" efforts to break persistent food inflation.
Upside pressures on the way forward from the pass-through of rupee depreciation, recent increases in administered prices and persisting imbalances, especially relating to food, pose risks of second-round effects.
Lower bank borrowing from RBI repo window reflects sizable injection of primary liquidity via OMO, decline in government cash balances.
Copyright: Thomson Reuters 2013
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