Wednesday, December 19, 2012

RBI keeps key rates unchanged

MUMBAI, December 19, 2012

The Reserve Bank of India (RBI), on Tuesday, kept the indicative policy rates and Cash Reserve Ratio (CRR) unchanged, reiterating that it would ease the policy in the fourth (January-March) quarter.

"In view of inflation pressures ebbing, monetary policy has to increasingly shift focus and respond to the threats to growth from this point onwards," the RBI reinforced in its third mid-quarter review of monetary policy.

"Overall, recent inflation patterns and projections provide a basis for reinforcing our October (second quarter) guidance about policy easing in the fourth quarter," it added.

However, the RBI said, "risks to inflation remain and, accordingly, even as the policy emphasis shifts towards growth, the policy stance will remain sensitive to these risks". In striking contrast to wholesale inflation developments, retail inflation remained elevated, the RBI added.

"The decline in core inflation has also been comforting. These emerging patterns reinforce the likelihood of steady moderation in inflation going into 2013-14, though inflation may edge higher over the next two months," said the apex bank.

The RBI has said, "Liquidity conditions will be managed with a view to supporting growth….. thereby, preparing the ground for further shifting the policy stance to support growth".

The central bank also said that the recent policy initiatives by the government and further reforms should help boost business sentiment and improve the investment climate. The RBI kept the indicative repo rate unchanged at 8 per cent and Cash Reserve Ratio (CRR) unchanged at 4.25 per cent. Repo rate is the rate at which banks borrow funds from the central bank and CRR is the portion of the deposits that banks keep with the central bank.

"While disappointing, the status quo is as was widely expected," said Naina Lal Kidwai, President of Federation of Indian Chambers of Commerce and Industry (FICCI).

"The recent moderation in inflation numbers, particularly non-food manufacturing at 4.5 per cent in November 2012, a 32-month low, should provide the central bank comfort to begin to consider a rate cut early in the year 2013," said Ms. Kidwai who is also the Country Head, HSBC India, and Director, HSBC Asia Pacific.

The RBI said that gross domestic product (GDP) growth in the second quarter of 2012-13 at 5.3 per cent was marginally lower than 5.5 per cent in the first quarter. However, it said there were some indications of a modest firming up of activity in the fourth quarter starting January.

"Industrial activity rose sharply in October but this is, in large part, due to a low base and festival-related demand which propelled the growth of both consumer durables and non-durables into double digits." Significantly, the RBI said, capital goods production recorded a growth of 7.5 per cent after 13 successive months of decline.

The manufacturing PMI (Purchasing Managers Index) rose moderately in November as order book volumes expanded. While the services PMI declined from a month ago, expansion in new business and order book volumes suggests positive sentiment about increasing activity in the months ahead. In the farm sector, rabi sowing coverage is expanding steadily, improving the prospects of agricultural growth.

Pressure on rupee

The RBI has also said that even as capital inflows improved compared to the second quarter, there were downward pressures on the rupee reflecting the large trade and current account deficits.

"RBI has indicated monetary policy easing in the coming quarter. This signal of a shift in the focus of monetary policy from inflation to growth is a welcome move," said Chanda Kochhar, MD & CEO, ICICI Bank. "The government has also announced various policy reforms and a path of fiscal consolidation, which along with the monetary policy measures and a decision-making environment that facilitates capital investments would support improved economic performance going forward," Ms. Kochhar added.
News From:

No comments:

eXTReMe Tracker