Reserve Bank of India

September 30, 2014

India’s key 8.0% lending rate, a.k.a. the repo, and 7.0% borrowing rate have been at those levels since a policy meeting late last January hiked each by 25 basis points.  For a fourth time, a subsequent meeting has not changed either of those rates nor the 4.0% cash reserve ratio.  The benchmark interest rates had been reduced by 125 basis points between April 2012 and May 2013 in four steps, but Governor Rajan reaffirmed the primacy of inflation containment after taking office in 2H13.  The aforementioned rate increase last January followed similar 25 bp moves in September and October of 2013.  Policy has been in a holding pattern most of 2014, awaiting further direction from CPI inflation data, which stands currently at 7.8%.  A statement released today reiterates inflation targets of 8% by January 2015 and 6% by early 2016, indicates confidence in the first goal but expresses greater uncertainty about whether the later target will be achieved with the current monetary policy stance.  The statement leaves the timing and direction of the next interest rate change ambiguous.

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



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