RBI keeps Repo Rate unchanged

As expected, the Reserve Bank of India has kept the Repo Rate unchanged at 8%. The RBI also kept the Cash Reserve Ratio (CRR) unchanged at 4%.

RBI Governor Raghuram Rajan on Monday addressed monetary policy review and said the RBI is eyeing at 5-6 percent GDP for the next fiscal year.

RBI also cautioned investors that if the coming Lok Sabha poll fails to elect a stable government then the economy could accentuate “downside risks to growth”.

“There are risks to the central forecast of 8 per cent CPI inflation by January 2015 stemming from a less-than-normal monsoon due to possible el nino effects; uncertainty on the setting of minimum support prices for agricultural commodities and the setting of other administered prices, especially of fuel, fertiliser and electricity; the outlook for fiscal policy; geo-political developments and their impact on international commodity prices,” RBI said.

“Retail inflation measured by the consumer price index (CPI) moderated for the third month in succession in February 2014, driven lower by the sharp disinflation in food prices, although prices of fruits, milk and products have started to firm up. Excluding food and fuel, however, retail inflation remained sticky at around 8 per cent. This suggests that some demand pressures are still at play,” RBI said.

“Since December 2013, the sharper than expected disinflation in vegetable prices has enabled a sizable fall in headline inflation. Looking ahead, vegetable prices have entered their seasonal trough and further softening is unlikely. Meanwhile, CPI inflation excluding food and fuel has remained flat,” RBI said.

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