labels: Economy - general
RBI refrains from rate cuts news
29 January 2008

Contrary to widely-held expectations of a rate cut by the Reserve Bank of India (See: Fears of recession, may force RBI to cut rate: survey), especially after the US Fed slashed rates by 75 basis points on 22 January (See: Fed announces unscheduled 75-basis point rate cut to 3.5 per cent) RBI governor Y V Reddy today left key lending rates unchanged at 7.75 per cent saying that inflationary risks continued. Reacting adversely to RBI having retained the existing rates, the stock markets reacted adversely with the 30-stock benchmark Sensex declining by 1.24 per cent in early noon trades.

RBI has kept the bank rate, repo rate, reverse repo rate unchanged. Accordingly, the: 

  • Repo rate remains unchanged at 7.75 per cent for the last 10 months
  • Reverse repo rate remains unchanged at 6 per cent
  • Cash reserve ratio (CRR) also remains unchanged at 7.50 per cent

A statement from the governor accompanying today's third quarter review of the annual monetary policy for 2007-08 said, "Development in the global financial markets in the context of the subprime crisis would warrant more intensified monitoring and swift responses with all available instruments to preserve and maintain macroeconomic and financial stability."

According to the Reserve Bank:

  • Headline inflation up since December 2007
  • Inflationary pressures expected to rise
  • Aims to contain inflation between 4 per cent and 4.5 per cent for FY08 and at 3 per cent in   the medium-term
  • Inflation to go up even if fuel prices remain unchanged 
  • Liquidity management to be priority for policy 
  • Flexibility to change reverse repo, repo rates
  • CRR unchanged on preview of current liquidity situation
  • Financial markets warrant careful monitoring on large foreign exchange inflows
  • Emphasis on price stability, anchoring inflation
  • Maintains GDP growth target of 8.5 cent for FY08
  • Forex outflows on global sentiments likely

Finance minister P Chidambaram has endorsed the RBI's stance, saying it could be calibrated later to match emerging global developments.

(For details, see: RBI Governor presents Third Quarter Review of Annual Statement on Monetary Policy for 2007-08  and Macroeconomic and Monetary Developments: Third Quarter Review 2007-08 )


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RBI refrains from rate cuts