RBI holds policy rates steady; cut likely in January

RBI governor Durruvi SubbaraoThe Reserve Bank of India today kept key policy rates unchanged, despite a drop in headline inflation rate in November. However, RBI governor Durruvi Subbarao strongly hinted that rates would be eased in the next policy review, due on 29 January.

The cash reserve ratio stays at 4.25 per cent and the repo rate at 8 per cent. Consequently, the reverse repo rate continues at 7 per cent and the bank rate at 9 per cent.

''Recent inflation patterns and projections provide a basis for reinforcing our October guidance about policy easing in the fourth quarter. In view of inflation ebbing, monetary policy has to increasingly shift focus and respond to the threats to growth from this point onwards,'' the RBI said in its review, indicating a cut in rates in late January.

The RBI has left rates on hold since a 50 basis point cut in April, and expectations of a further cut were pushed into the first quarter of 2013 following the guidance by the central bank in late October.

The central bank is closely monitoring the evolving growth-inflation dynamics and would update projections for 2012-13 in the third quarter review, RBI said.

It said the biggest risk to growth stems from global politico-economic developments which could delay resolute policy action.