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.

would need to be supportive to sustain investor confidence. The government will also have to address the concerns relating to structural supply side bottlenecks".


Following are the highlights of RBI's Mid-Quarter Monetary Policy Review:

* RBI keeps interest rate (repo rate) and cash reserve ratio (CRR) unchanged.

* RBI says global economy has shown some signs of stabilisation although situation remains fragile.

* At home, there are some incipient signs of pick-up though growth remains significantly below its recent trend.

* Recent policy steps by the Govt and more reforms should help boost business sentiment, improve investment climate.

* Inflationary pressure moderating but high food and commodity prices continue to remain a risk.

* RBI says it is closely monitoring the evolving growth-inflation dynamics.

* RBI to update formal assessment of its growth and inflation projections for 2012-13 in January.

* With inflation pressures ebbing, monetary policy has to shift focus and respond to threats to growth from now on, says RBI.

RBI keeps rates unchanged, hints at rate cut in January

(Reuters) India's central bank kept interest rates on hold on Tuesday, ignoring government pressure to reduce borrowing costs, but said it was shifting its focus towards boosting a flagging economy, raising the odds of a rate cut as early as January.

The Reserve Bank of India (RBI) reiterated guidance from its last policy meeting in October that it was likely to resume monetary policy easing in the January-March quarter, as inflation pressures are expected to ease in the next few months.

Wary of stubbornly high inflation, the RBI has kept its key policy rates on hold since a 50 basis point cut in April, in contrast to other big emerging market central banks in China, Brazil and South Korea that have been more aggressive in easing policy to support growth.

On Tuesday, the central held the repo rate at 8.00 percent and also kept its cash reserve ratio (CRR) for banks steady at 4.25 percent, its lowest level since 1974. The CRR is the share of deposits that lenders must keep with the central bank.

"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 central bank wrote in its mid-quarter monetary policy review.

A Reuters poll last week showed 37 of 41 economists had expected the RBI to hold the policy repo rate steady, while respondents were roughly evenly split over the likelihood of a cut in the

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