RBI keeps repo rate unchanged at 8% on easing inflation
Mumbai: The Reserve Bank of India (RBI) on Tuesday
opted for a status quo in the key policy rate, in line with market
expectations, taking comfort from easing inflation in the backdrop of
slowing growth in Asia’s third largest economy.
RBI governor Raghuram Rajan,
in the bi-monthly monetary policy review, ruled out further tightening
in the near term if inflation continued along the “glide path”.
RBI also said the FY15 gross domestic product (GDP) growth is expected to be 5-6%.
RBI kept the repo rate, at which it lends short-term
funds to banks, at 8%. The cash reserve ratio (CRR), or the portion of
deposits banks need to park with the central bank on which they earn no
interest payment, was also kept unchanged at 4%.
Out of the 39 economists polled by Bloomberg, 36 had forecast a status-quo in the repo rate.
Since September, RBI has hiked the repo rate thrice by a
total of 75 basis points (bps), refusing to lower its guard against
inflationary threats, which have been a major concern for the central
bank in the past few years.
One bps is one-hundredth of a percentage point.
Inflation measured by wholesale prices eased to 4.68% in
February from 5.05% in January, while retail inflation, the preferred
price indicator of an RBI expert panel for policy formation, too eased
to 8.1% in February from 8.79% in January.
Economists said the decline in inflation gave room to the
central bank to take a pause on rate hikes and wait for further cues to
decide the course of monetary policy.
In January, an expert panel, headed by one of RBI’s deputy governors, Urjit Patel,
had proposed making retail inflation the key price indicator for
monetary policy formation. The panel had charted out a roadmap to bring
down consumer inflation to 8% by January 2015 and 6% by January, 2016.
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