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The Reserve Bank of India (RBI) left interest rates unchanged on Tuesday as it supports a battered rupee but said it will roll back recent liquidity tightening measures when stability returns to the currency market, enabling it to resume supporting economic growth.
As expected, the Reserve Bank of India left its policy repo rate at 7.25 percent but took a dovish tone as it cut its growth forecast for Asia's third-largest economy to 5.5 percent for the fiscal year, from 5.7 percent previously. It held the cash reserve ratio at 4.00 percent.
SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI, MUMBAI
"The policy statement is slightly more dovish than what we had expected. The Reserve Bank of India has clearly stated that the cash tightening steps will be reversed in a calibrated manner. Supporting growth is a priority for the RBI. "We expect that within two months, the cash tightening steps will be faded out, and monetary easing will resume. We are expecting another 50 basis points cut in the repo rate in 2013."
SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI
"Our sense is 58-59/$1 level will broadly be seen as comfort level for rupee. And, any trading above 60/$1 would once again get RBI in a cautious mode. As such, we may have to wait beyond a few weeks to see the rollback of these measures. In terms of a rate cut, I don't think there is any clear signal for a rate cut, I think status quo is likely.
"Continuing from it (RBI) said yesterday, reforms are a must, a pre-condition to be able to contain CAD. What actually gets our attention, is the statement that India should use tightening as an opportunity to narrow CAD. "Quite clearly macro-financial stability and rupee stability have taken precedence in the policy considerations. And once there is stability growth would come back."
ANJALI VERMA, ECONOMIST, PHILLIPCAPITAL, MUMBAI
"The policy overall looks dovish. The RBI clearly would have had a loosening stance if the currency concerns were absent. I do not think the RBI will reverse the current tightening steps till the rupee remains around the 60 to a dollar level. Only the issue of NRI bonds or an extended period of loosening from Fed can reverse the rupee's fortunes."
RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI
"The RBI as expected has highlighted the downside risks to growth. But unless the currency stabilises