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India’s Central Bank Governor Raghuram Rajan on Tuesday kept the key policy rate (repo) unchanged.
The Reserve Bank of India, in its first bimonthly monetary policy statement, left the short-term lending rate or repo rate unchanged at 8 per cent and the cash reserve ratio static at 4 per cent.
“At the current juncture, it is appropriate to hold the policy rate, while allowing the rate increases undertaken during September 2013-January 2014 to work their way through the economy,” said Rajan, who had in previous policy announcements surprised the markets with policy rate changes.
The Central Bank pegged 2014-15 GDP growth for India at a central estimate of 5.5 per cent. It said the FY14 current account deficit would be about 2 per cent of GDP.
“Most recently, export growth has slowed partly because of slowdown in demand in partner countries as well as a softening of prices of exports of petroleum products and gems and jewellery (offset by a reduction in the prices of oil and gold imports),” Rajan said.
“Whether the export slowdown persists as global growth picks up once again remains to be seen. In February, there was a turnaround in portfolio flows as investors largely priced in the effects of taper by the US Fed and responded to economic and geo-political developments in emerging markets with re-allocations,” he added.
It halved the overnight call money rate to 0.25 per cent and increased the 7-day and 14-day repo limits to 0.75 per cent from 0.50 per cent.
If inflation continues along the glide path of reaching 8 per cent by January 2015 and 6 per cent by the year after, the Governor promised there won’t be any rate hikes.
Rajan said he sees retail inflation softening in 2014 to under 6 per cent.
“Excluding food and fuel…retail inflation remained sticky around 8 per cent. This suggests that some demand pressures are still at play,” he said.