RBI Holds Interest Rates Steady; CRR Unchanged

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The Reserve Bank of India (RBI) today held repo rates (rates at which RBI lends money to banks) steady, as CPI inflation continued to worry the Central Bank.

The Cash Reserve Ratio was also left unchanged at 4 per cent. Today's decision by the RBI had largely to do with the rise in inflation and front loading of interest rates.

RBI Holds Interest Rates Steady; CRR Unchanged
"Turning to the balance of inflation risks, most worrisome is the sustained hardening of inflation excluding food and fuel. Moreover, the full effects of the service tax increase, which took effect from June, will feed through over the rest of the year. Some food prices, particularly of protein-rich items, pulses and oilseeds have risen sharply in recent months," the RBI said in a release.
One of the other reasons for the RBI to hold interest rates was the reason of front loading interest rates.

"Taking into account all this, and given that policy action was front-loaded in June, it is prudent to keep the policy rate unchanged at the current juncture while maintaining the accommodative stance of monetary policy," the RBI said.

Most analyst today were expecting the RBI to hold interest rates steady and this was largely in line with what analysts were expecting.

The language of the RBI also was not very dovish, thus analyst are looking at just another interest rate cut going forward in 2015. This is largely on account of falling crude prices, which should keep inflation benign in the next few months.


Read more about: monetary policy, rbi, repo rate
Story first published: Tuesday, August 4, 2015, 11:15 [IST]
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