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RBI monetary policy review: key policy rates unchanged


RBI monetary policy review: key policy rates unchanged
The Reserve Bank of India (RBI) on Friday kept all key monetary policy rates unchanged seeing inflation figures coming down slowly and gradually. It raised policy rates for 13 consecutive times since March 2010 to curb inflation.

With this the repo, the rate at which it lends to banks stood at 8.5% and the reverse repo, at which it borrows from banks stood at 7.5%.


Other policy rates, like Cash Reserve Ratio (CRR), the amount of the funds that banks have to keep with RBI, also remained unchanged at 6%.

The food inflation for the week ended December 3 eased drastically to 4.35% against 6.6% in the previous week.

Overall wholesale price index (WPI) inflation for November also fell to the lowest level in a year to 9.11% from 9.73%, relieving the policy-makers.

The central bank is now focusing on the growth numbers. Due to a series of continuous hikes in the key policy rates, the GDP growth has come down to 6.9% in Q2 of 2011-12 from 7.7% in Q1 and 8.8% in previous year same quarter.

Finance Minister, Pranab Mukherjee said today that the decision to hold rates is taken to boost growth. If RBI had not paused rate hike, the growth rate would have tumbled to even lower levels. The RBI expects headline inflation to come down to the level of 7% by March.

Commenting on the RBI's decision to keep rates unchanged, C Rangarajan, Chairman of PMEAC said that inflation will start declining sharply going forward and the fall in inflation will give RBI room to reverse its stance.

The central bank is more concerned about the falling rupee which is putting more pressure to the inflation. Expressing the concerns, the RBI governor, Subbarao said that Rupee depreciation had starting adding pressure to the Inflation. The RBI on Friday intervened in the currency market and imposed restrictions on forward trading to pause the further slide of the Indian currency against US Dollar.

Story first published: Friday, December 16, 2011, 13:28 [IST]
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