Guv Raghuram Rajan's RBI (Reserve Bank of India) kept its key policy repo rate unchanged on Tuesday as widely expected, and voiced a commitment to bringing down inflation that convinced many analysts that markets will have to wait until next year for the next cut in rates.
The Reserve Bank of India (RBI) left the repo rate at 8.00 percent, as expected by nearly all 43 economists surveyed by Reuters for a poll published last week. The repo rate has been unchanged since January, when the RBI increased it by a quarter percentage point. Raghuram Rajan RBI policy review: Read Full Speech
"The upside risks to the target of ensuring CPI inflation at or below 8 percent by January 2015 remain, although overall risks are more balanced than in June," Governor Raghuram Rajan wrote in the RBI statement on its policy review.
"It is, therefore, appropriate to continue maintaining a vigilant monetary policy stance as in June, while leaving the policy rate unchanged."
Rajan stressed that the next goal was to bring inflation down to 6 percent by January 2016, while warning of upside risks to that target also.
Analysts said the RBI statement could put to rest any prospect of rate cuts for a while, with many ruling out the chances of any reduction this year.
"I think we will be in a pause mode for an extended period of time," said Mohan Shenoi, treasurer at Kotak Mahindra Bank.
The RBI did, however, announce steps to free up resources for banks to lend, a priority for Prime Minister Narendra Modi's government as it seeks to encourage investment in order to put momentum back in sluggish economic growth.
The central bank said it would continue to focus on spurring more lending and lowered banks' minimum bond holding requirements, known as the statutory liquidity ratio (SLR), by half a percentage point to 22.0 percent of deposits to free up more money for lending, effective from Aug. 9.
The RBI also cut the ceiling on debt that must be held-to-maturity (HTM) by lenders half a percentage point to 24 percent.
It did not provide an estimate on how much credit growth that could spur.
The measures come after the RBI had also cut the SLR by half a percentage point in June.
India's benchmark 10-year bond fell, sending its yield up 9 bps to 8.82 percent, as cuts in