A Pause in Monetary Tightening in India

April 1, 2014

The Reserve Bank of India previously engineered 25-basis point interest rate hikes last September 20, October 30 and January 28.  The repo and reverse repo rates have been at 8.0% and 7.0% since the January hike.  After reviewing their policy, monetary officials concluded that no further tightening is needed in the near term.  Today’s bi-monthly monetary policy statement proclaims that

The Reserve Bank’s policy stance will be firmly focused on keeping the economy on a disinflationary glide path that is intended to hit 8 per cent CPI inflation by January 2015 and 6 per cent by January 2016. At the current juncture, it is appropriate to hold the policy rate, while allowing the rate increases undertaken during September 2013-January 2014 to work their way through the economy.  Furthermore, if inflation continues along the intended glide path, further policy tightening in the near term is not anticipated at this juncture.

Wholesale price inflation slowed to 4.7% in February, lowest since May 2013, while GDP is expected to expand somewhat more than 5% in 2014-15.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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