The Reserve Bank of India (RBI), has kept policy rates unchanged in its Mid Quarter Review of Monetary Policy announced today. The repo rate (the rate at which RBI lends money to banks) remains unchanged at 8.5%. The Reverse Repo Rate (rate at which RBI borrows money from banks) also will remain unchanged at 7.5% and the Marginal Standing Facility (MSF) rate at 9.5%.
The RBI has also kept the Cash Reserve Ratio (the amount of funds that the banks have to keep with RBI) unchanged at 6%.
RBI indicated that that it could cut key policy rates from now onwards to arrest falling growth while keeping a close vigil on inflation. According to the mid quarterly review of RBI, the global growth for 2011 - 2012 is now expected to be lower than earlier projected.
Expressing concerns over the moderating growth rate, the RBI has stated that based on the projected inflation trajectory, further rate hikes may not be warranted. GDP Growth of the domestic economy has moderated to 6.9% in the second quarter of 2011 - 2012 from 7.7% in the first quarter. The deceleration in economic activity in the second quarter of this financial year has been on account of a sharp moderation in industrial growth.
The review stated that promising agricultural prospects on the back of Kharif output and progress on rabi sowing has been a significant contributing factor towards declining inflation rates
On account of moderation in food inflation in November - 2011 and expected moderation in aggregate demand, the inflation projection for March 2012 is retained at 7%. The mid quarterly review of the RBI also highlighted that inflation risks still remain high and both inflation and inflation expectations still remain above the comfort level of the Reserve Bank.
