Quarterly policy review: RBI keeps interest rates, CRR unchanged, focus shifts to growth

Dec 18 2012, 20:59 IST
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The central bank also kept the cash reserve ratio (CRR) unchanged at 4.25 per cent.  (Reuters) The central bank also kept the cash reserve ratio (CRR) unchanged at 4.25 per cent. (Reuters)
SummaryThe central bank also kept the cash reserve ratio (CRR) unchanged at 4.25 per cent.

RBI quarterly policy review: The Reserve Bank of India (RBI) today decided to keep key interest rates unchanged but provided sufficient hints that it would reduce them in January, giving some comfort to industry and banks which have been clamouring for a rate cut for quite some time.

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

The Reserve Bank of India (RBI) left the short-term lending (repo) rate and the cash reserve ratio -- the amount of deposits banks have to park with RBI-- unchanged at 8 per cent and 4.25 per cent, respectively.

RBI said that it is closely monitoring the evolving growth-inflation dynamics and it is likely to ease monetary policy in the January-March quarter.

The third quarter review will be unveiled on January 29.

Bankers felt that RBI would keep the promise and cut key interest rates next month giving them a leeway to pass on the benefits to retail consumers and corporates.

"I don't think banks will change their lending or deposit rates at the moment," Oriental Bank of Commerce CMD S L Bansal said, adding banks would consider a rate cut once RBI softens monetary stance.

HDFC Vice-chairman and CEO Keki Mistry said: "We will see lower interest rates in 2013.

I expect RBI to cut rates by 0.50 per cent before March and more rate cuts from April."

As regards the corporate sector, industry chambers expressed disappointment but took satisfaction from RBI's guidance that the central bank would consider a rate cut in the January policy review.

Commenting on the policy, Chief Economic Adviser Raghuram Rajan said it is good that RBI sees room for rate cut.

"I think its good that RBI sees that there is room to ease. And clearly they are taking a decision keeping in mind that their main job is combating inflation. I look forward to good news in policy (January)," Rajan said.

"But they (RBI) also have some incentive to seek growth in the country," he said. Ficci President Naina Lal Kidwai said: "… disappointing, industry is crying out for an impetus for investment and growth and lower interest rates would be oxygen to the sentiment which is beginning to turn positive.

" Asserting that RBI has its own constraint, Commerce and Industry Anand Sharma said: "There is, of course, a positive side that

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