RBI kept key rates unchanged in its mid-quarter review of the monetary policy announced on 17 June 2013

RBI kept key rates unchanged in its mid-quarter review of the monetary policy announced on 17 June 2013

The Reserve Bank of India kept interest rates unchanged on 17.06.13 (Monday) in the mid-quarter review of the monetary policy, after cutting them in each of its previous three policy reviews, warning of upward risks to inflation posed by a falling rupee and increases in food prices.

As expected, the Reserve Bank left its policy repo rate unchanged at 7.25 per cent and kept the cash reserve ratio (CRR), or the share of deposits banks must keep with the central bank, steady at 4 per cent, despite falling inflation in recent months.

“The monetary policy stance has been informed by the evolving growth-inflation dynamics, the balance of risks as well as recent developments in the external sector,” RBI Governor D Subbarao said in the mid-quarter policy review.

Rupee has declined by 5.8 per cent since January 1 and touched a record low of 58.96 to a dollar last week. In its guidance, the RBI, particularly, flagged risks on inflation, saying “it is only a durable receding of inflation that will open up the space for monetary policy to continue to address risks to growth.”

The Highlights of the monetary policy announced by RBI are:

* Key short term lending rate (repo rate) kept unchanged at 7.25 per cent;

* Cash reserve ratio unchanged at 4 pc;

* Rupee fall, external sector risks and elevated food inflation areas of concern;

* Continuing weakness in manufacturing needs to be urgently reversed;

* RBI asks government to create conducive environment for private investment, improve project clearances to promote growth;

* Steps to curb gold imports, easing commodity prices to lower CAD in 2013-14;

* Balance of Payments, inflation and growth rate to determine future monetary stance;

* Need to be vigilant about global uncertainty and its impact on capital flows;

* RBI ready to use all available instruments to deal with any adverse development in external sector and positive rating action should have favourable impact on investor confidence.