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2013-12-19

RBI leaves key rates unchanged

Reserve Bank India\\\'s Governor Raghuram Rajan sprang a surprise leaving key rates unchanged to back growth but warned that they may be hiked if inflation does not subside.

Reserve Bank India's Governor Raghuram Rajan sprang a surprise leaving key rates unchanged to back growth but warned that they may be hiked if inflation does not subside.


Rajan's reading of declining inflation led to maintaining the status quo on the repo rate at 7.75 percent and cash reserve ratio (CRR) at 4 percent, a move that cheered both the capital market and India Inc.


"If the expected softening of food inflation does not materialise and translate into a significant reduction in headline inflation...Or if inflation excluding food and fuel does not fall, the Reserve Bank will act, including on off-policy dates," he said after unveiling the Mid-Quarter Monetary Policy Review.


The next review is due on January 28.


Rajan said vegetable prices which were primarily responsible for inflation soaring to a 14-month high of 7.52 percent in November, are "turning down sharply" and expected economic growth to be better in the second half of the fiscal.


The decision to keep rates unchanged will be a breather for the industry and retail borrowers in particular as the markets had expected another 0.25 percent hike in the short-term lending rate that could have raised EMIs for home, auto and other loans.


Rajan said economic growth is set to improve in the second half of this financial year on expansion in the agriculture sector, exports and movement in stalled projects.


Factory output shrank 1.8 percent in October, the first contraction in the Index of Industrial Production (IIP) in four months.


Shifting his stance from inflation management, Rajan said continuing weakness in economic growth was the main driver of his policy action.
 

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