Repo Rates - No Change

The Reserve Bank of India on Monday declared the much awaited policy today but disappointed the market by keeping the policy repo rate unchanged at 8% . The reverse repo rate at which, banks lend money to RBI also remained same at 7%. 

 

The cash reserve ratio (CRR) or the share of deposits lenders need to keep with the regulator too remains unchanged at 4.75%.

 

It was widely expected that RBi will come out some cuts in repo rate and reverse repo rates to bring down the lending rates etc. and to bring fresh investments in the manufacturing sector.

 

RBI said in its policy statement:

 

"Our assessment of the current growth-inflation dynamic is that there are several factors responsible for the slowdown in activity, particularly in investment, with the role of interest rates being relatively small. Consequently, further reduction in the policy interest rate at this juncture, rather than supporting growth, could exacerbate inflationary pressures," .

 

The wholesale price index (WPI) based rate of inflation rose to 7.6% in May as against 7.23% in April, 2012 driven by fuel and food prices. During the same period, the core inflation rate was close to 5% compared with 4.44% a month back. During FY12, headline WPI rate of inflation moderated from a peak of 10% in September 2011 to 7.7% in March, 2012.