Reserve Bank of India Keeps Existing Policy Settings

August 9, 2016

A statement┬áreleased after the third bi-monthly policy review retained the repo rate at 6.0%, the reverse repo at 6.0%, and the cash reserve requirement at 4%. This was the final meeting led by Governor Raghuram Rajan, who completes his 3-year term next month. Some concern is expressed about the potential for rising core inflation in the future and higher expected inflation. Food prices are seen receding, thanks to a good monsoon, and the baseline forecast anticipates CPI inflation dropping from 5.77% now, a 22-month high, to the target of 5.0% by March 2017. However, risks to that forecast are skewed to the upside, and with policy considered accommodative, officials decided not to loosen the stance additionally. It’s better to ensure that the risks associated with core inflation and expected inflation do not play out unduly before acting again. ┬áThe last repo rate cut, a move of 25 basis points, was made in April. Earlier reductions of a quarter percentage point in January, March and June 2015 were followed by a 50 basis point decrease in September. In April of this year, the repo-reverse repo spread was lowered by 50 basis points to half a percentage point.

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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