Reserve Bank of India
December 2, 2014
Once again, India’s monetary policy was left unchanged following a scheduled bi-monthly review. The repo rate, reverse repo, and reserve requirement ratio will remain at 8%, 7% and 4%. Interest rate hikes had been raised 25 basis points each in September and October 2013 and, most recently, January 2014. A released statement from Governor Rajan. Inflation has fallen sharply recently and is currently even below the end-2015 goal, but officials for now are resisting the impulse to cut rates now in order to determine if the lower inflation trajectory will prove durable. While the prior review was ambivalent about the next interest rate change, this one offers the conditional prospect of an easing early next year if certain factors fall into place.
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There is still some uncertainty about the evolution of base effects in inflation, the strength of the on-going disinflationary impulses, the pace of change of the public’s inflationary expectations, as well as the success of the government’s efforts to hit deficit targets. A change in the monetary policy stance at the current juncture is premature. However, if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle.
In the course of the latest review of economic conditions and policy, the central forecast for CPI inflation was revised down to 6% for March 2015. The next policy review will be unveiled on February 3rd.
Copyright 2014, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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