Reserve Bank of India’s Bi-Monthly Monetary Statement

August 5, 2014

The RBI’s repo rate was left at 8.0%, and the reverse repo rate will stay at 7.0%.  But another 0.5 percentage point cut of the Statutory Liquidity Rate trims such to 22.5%.  The statement released by Governor Rajan observes that “CPI inflation excluding food and fuel decelerated further, extending the decline that began in September 2013” but cautions that “it would be premature to conclude that future food inflation, and its spill-over to broader inflation, can be discounted.”  The downtrend of inflation in part reflects tighter monetary policy engineered through three prior 25-basis point interest rate hikes last September, October and January.  The statement reminds readers that “the Reserve Bank will continue to monitor inflation developments closely, and remains committed to the disinflationary path of taking CPI inflation to 8 per cent by January 2015 and 6 per cent by January 2016….. The balance of risks around the medium-term inflation path, and especially the target of 6 per cent by January 2016, are still to the upside, warranting a heightened state of policy preparedness to contain these risks if they materialise. In the months ahead, government actions on food management and to facilitate project completion should improve supply, but as consumer and business confidence pick up, aggregate demand will also strengthen. The Reserve Bank will act as necessary to ensure sustained disinflation.”

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



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