RBI Keeps Interest Rates on Hold in Feb Monetary Policy

Business

oi-Sunil

By Sunil Fernandes

Updated: Tuesday, February 3, 2015, 11:21 [IST]

The Reserve Bank of India (RBI) today kept the repo rate or interest rate steady in its policy meet after having cut interest rates by 0.25 per cent or 25 basis points last month.

The Reserve Bank of India also kept the Cash Reserve Ratio or the CRR unchanged considering ample liquidity in the system. However, the bank reduced the statutory liquidity ratio (SLR) of scheduled commercial banks by 50 basis points from 22.0 per cent to 21.5 per cent of their NDTL with effect from the fortnight beginning February 7, 2015.

Economists and analysts were not expecting any rate cut given the fact that the RBI had already cut interest rates out of the policy in Jan. RBI Governor Raghuram Rajan had hinted that future cuts would depend on the government's fiscal deficit roadmap.

The Reserve Bank also indicated that "key to further easing are data that confirm continuing disinflationary pressures. "Also critical would be sustained high quality fiscal consolidation...". Given that there have been no substantial new developments on the disinflationary process or on the fiscal outlook since January 15, it is appropriate for the Reserve Bank to await them and maintain the current interest rate stance," the RBI has said in its policy meet.

The country's central bank also said the upside risks to inflation stem from the unlikely possibility of significant fiscal slippage, uncertainty on the spatial and temporal distribution of the monsoon during 2015 as also the low probability but highly influential risks of reversal of international crude prices due to geo-political events.

Meanwhile, stock markets reacted marginally to the news as some analysts had expected a rate cut. Most economists and analysts polled by leading business news channels expect a rate cut after the Union Budget. Shares in banking sector dropped after the policy decision was announced.

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