Reserve Bank of India: No Policy Changes after Mid-Quarter Review

June 18, 2012

India’s key interest rates had been cut by 50 basis points in mid-April, but no further reduction were sanctioned after this week’s policy review.  April’s reduction was the first one in three years.  In between, thirteen increases had occurred from March 2010 through October 2011.

Policymakers have tried to balance concerns about slowing economic growth with containing persistent inflation.  Price stability got top priority this time, with particular concern about supply-demand bottlenecks.  Headline consumer price inflation had climbed from 8.8% in February to 10.4% in April.  A statement from monetary officials noted that “moderation in wholesale price inflation has not transmitted to the retail level” and added “the persistence of overall inflation both at the wholesale and retail levels, in the face of significant growth slowdown, points to serious supply bottlenecks and sticky inflation expectations.”

Analysts had been split ahead of today’s announcement, some expecting further monetary easing and even more looking for the pause that in fact occurred.  Officials also did not cut reserve requirements further.  These had be reduced by a half percentage point to 5.5% in January and by three-quarters of a percentage point to the current 4.75% in March.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



Comments are closed.