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The Reserve Bank of India (RBI) has left key policy rates untouched on Thursday mainly on the back of high fiscal deficit and rising crude oil prices.
The central bank has not cut rates for more than two years. In this period, the repo rate, which is the rate at which banks borrow money from RBI, has gone up by 3.5% to 8.5%.
The Reserve Bank said it needs more clarity on the government's fiscal roadmap, which has been in complete disarray so far. The government is poised to miss this fiscal year's deficit target of 4.6% of GDP by a wide margin.
The RBI says notwithstanding the slowing growth, inflation risks still remain and to curtail that, it says, credible fiscal consolidation is vital. "Growth and inflation dynamics shows no tightening is needed. Further actions will be towards lowering rates," the central bank said in its statement.
Inflation has firmed up to 6.95% in February from 6.55% in January. Also, the rising crude oil prices to USD 125 a barrel indicates further hike in inflation.
India's factory output grew its fastest in seven months in January, powered by a surge in manufacturing including consumer non-durables.
Analysts and economists believe the RBI will wait until at least April before deciding on cutting rates, until it is clear that inflation is under control.
Last week, RBI slashed CRR (cash reserve ratio) from 5.5% to 4.75%. CRR is the portion of net demand and time liabilities (NDTL) (read, total deposits) that banks have to mandatorily keep with the regulator . With this, the central bank had infused Rs 48,000 crore into the economy.
This was the second reduction in the CRR since the January 24 policy announcement, when it had slashed CRR by 50 basis points releasing Rs 32,000 crore into the system.
RBI expects liquidity situation to ease further in weeks ahead. However, it expects current account deficit to remain at elevated levels.
sources:-http://www.moneycontrol.com/news/economy/rbi-credit-policy-central-bank-keeps-key-rates-unchanged_680608.html
The Reserve Bank of India (RBI) has left key policy rates untouched on Thursday mainly on the back of high fiscal deficit and rising crude oil prices.
The central bank has not cut rates for more than two years. In this period, the repo rate, which is the rate at which banks borrow money from RBI, has gone up by 3.5% to 8.5%.
The Reserve Bank said it needs more clarity on the government's fiscal roadmap, which has been in complete disarray so far. The government is poised to miss this fiscal year's deficit target of 4.6% of GDP by a wide margin.
The RBI says notwithstanding the slowing growth, inflation risks still remain and to curtail that, it says, credible fiscal consolidation is vital. "Growth and inflation dynamics shows no tightening is needed. Further actions will be towards lowering rates," the central bank said in its statement.
Inflation has firmed up to 6.95% in February from 6.55% in January. Also, the rising crude oil prices to USD 125 a barrel indicates further hike in inflation.
India's factory output grew its fastest in seven months in January, powered by a surge in manufacturing including consumer non-durables.
Analysts and economists believe the RBI will wait until at least April before deciding on cutting rates, until it is clear that inflation is under control.
Last week, RBI slashed CRR (cash reserve ratio) from 5.5% to 4.75%. CRR is the portion of net demand and time liabilities (NDTL) (read, total deposits) that banks have to mandatorily keep with the regulator . With this, the central bank had infused Rs 48,000 crore into the economy.
This was the second reduction in the CRR since the January 24 policy announcement, when it had slashed CRR by 50 basis points releasing Rs 32,000 crore into the system.
RBI expects liquidity situation to ease further in weeks ahead. However, it expects current account deficit to remain at elevated levels.
sources:-http://www.moneycontrol.com/news/economy/rbi-credit-policy-central-bank-keeps-key-rates-unchanged_680608.html
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