Wednesday 18 December 2013

CREDIT POLICY OF RBI ..RBI keeps repo, CRR unchanged; to act if inflation warrants



As India continues to battle the scenario of low growth and high inflation, RBI governor Raghuram Rajan pleasantly surprised the market by keeping key rates unchanged. In its mid-quarter monetary policy meet on Wednesday, the Reserve Bank of India left repo rate unchanged at 7.75 percent and CRR at 4 percent of net demand and time liability (NDTL), saying it was willing to wait for more inflation data before taking an action. Consequently, the reverse repo rate under the liquidity adjustment facility (LAF) remained unchanged at 6.75 percent, and the marginal standing facility (MSF) rate and the Bank Rate stood at 8.75 percent.
The apex bank, however, conveyed the message that this policy is a "closed one" and an action can be taken even on off policy dates if inflation does not behave. "There is merit in waiting for more data to reduce uncertainty," the RBI governor justified. Speaking to the press soon after the policy announcement, Raghuram Rajan said the policy should not be construed as RBI being soft on inflation. He said curbs on borrowing from LAF window will continue.

Reacting to the RBI inaction, bond yield inched lower and market rose sharply led by banks.

A total of 90 percent respondents of a CNBC-TV18 poll on "expectation from the RBI monetary policy" had voted for a 25 bps rate hike .

The tight monetary policy aimed at killing pricing power had resulted in compromising growth, which is now forecasted at 4.7 percent for FY14. The policy noted that lacklustre lead indicators of services and subdued domestic consumption demand suggest continuing headwinds to growth. "Tightening government spending in Q4 to meet budget projections will add to these headwinds. In this context, the revival of stalled investment, especially in the projects cleared by the Cabinet Committee on Investment, will be critical." 

But the core WPI inflation (excluding food, oil and metals) has managed to stay at 3.5%, pretty much at last month’s levels which is why the apex bank had decided to halt for a while. However, the November WPI inflation touched 7.5 percent driven by a spike in food prices, beating the street consenus of 7 percent. November CPI inflation too came in at 11.2% versus an expectation of 10.6%.

The policy statement clearly says that the high level of CPI inflation excluding food and fuel leaves no room for complacency. "There are indications that vegetable prices may be turning down sharply, although trading mark-ups could impede the full pass-through in to retail inflation."

No comments:

Post a Comment