Mumbai, July 28 (Inditop.com) The Reserve Bank of India (RBI) Tuesday unveiled the first update of its monetary policy for this fiscal here Tuesday with no major changes in key rates, in line with the predictions and expectations by analysts.
Despite a sharp upward revision in India’s growth rate, concerns over inflation forced RBI Governor D. Subbarao to keep a status quo on key rates, which was evident from the statement made by him as part of Tuesday’s review.
“It is worth reiterating that the Reserve Bank will maintain an accommodative monetary stance until there are definite and robust signs of recovery,” said Subbarao, adding a strict vigil will be kept on inflation.
The central bank has raised its inflation forecast for this fiscal to 5 percent, against 4 percent earlier.
In the policy unveiled by the central governor April 21, both the repo and the reverse repo rates were cut by 25 points each, even as statutory liquidity ratio and the cash reserve ratio were left unchanged.
The repo rate, currently at 4.75 percent, is the interest charged by the RBI on borrowings by the commercial banks. A reduction in the same lowers the cost of borrowings for commercial banks.
The reverse repo rate, currently at 3.25 percent, is the rate at which the central bank borrows money from commercial banks. A lowering of this rate makes it less lucrative for banks to park funds with the central bank.
A day ahead of the review, the central bank had sharply raised its growth forecast for the country’s economy to 6.5 percent from its earlier projection of 5.7 percent, but warned that inflation could also move into higher territory.
The bank also said food prices — that are already high, particularly in the case of fruits, vegetables and lentils — were likely to move northward given the feeble progress of the monsoon and rise in minimum support price paid to farmers for their crops.
“There are indications of inflation firming up by the end of the year due to the waning base effect of last year, increase in commodity prices, delayed progress of monsoon potentially driving up food prices,” it said.
