Reserve Bank of India Passes in June

June 17, 2013

The RBI already had cut its repo and reverse repo rates three times this year in reductions of 25 basis points at its January, March and May meetings.  An earlier easing of 50 bps was implemented 14 months ago in April 2012.  The key lending and borrowing rates are now 7.25% and 6.25%, and the cash reserve ratio is 4.0%.

None of these policy levers were reduced further in June.  A statement from central bank officials warns that “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.”  A current account deficit of roughly 4% of GDP keeps India reliant on capital inflows, and the rupee’s demonstrated vulnerability to risk-off global conditions constrains the Reserve Bank of India’s leadership from promoting economic growth more aggressively.  GDP expansion last fiscal year was the lowest in a decade.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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