RBI keeps repo rates on hold in Monetary Policy meet; warns on inflation

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 RBI keeps repo rates on hold in Monetary Policy meet; warns on inflation
The Reserve Bank of India (RBI) today kept policy rates on hold largely in line with expectations. The repo rate has been maintained at 8 per cent, while the Marginal Standing Facility (MSF) rate has also remain unchanged at 9 per cent. The CRR has been left at 4 per cent.

The RBI said that no further tightening would be necessary if inflation continued on the glide path. However, the central bank warned that risks to inflation persists if there was a far from normal monsoon.

"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. There will also be a downward statistical pull on CPI inflation exerted by base effects of high inflation during June-November 2013," the RBI said in a statement.

The RBI has said that it would focus on keeping inflation on a glide path and has set targets until 2016.

"The Reserve Bank's policy stance will be firmly focussed on keeping the economy on a disinflationary glide path that is intended to hit 8 per cent CPI inflation by January 2015 and 6 per cent by January 2016," the RBI has said.

Today's status quo on interest rates was largely on account of a drop in inflation. The February wholesale price inflation (WPI) figure dropped to 4.68 per cent from 5.05 per cent in January and way below consensus estimates.
February Consumer price Inflation (CPI) food inflation eased to 8.1 per cent against 8.79 per cent on a month-on-month basis (MoM). The drop in inflation was largely on account of a sharp fall in food inflation following a steep reduction in food prices.

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