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RBI announced fifth Bi-Monthly Monetary Policy Statement 2014-15

Dec 2, 2014 16:10 IST

The Reserve Bank of India (RBI) on 2 December 2014 announced fifth Bi-Monthly Monetary Policy Statement. RBI in its fifth bi-monthly monetary policy statement kept the policy rates unchanged.

Based on the assessment of the current and evolving macroeconomic situation, the policy rates as on 2 December 2014 are:

• Repo rate: 8 percent

• Reverse repo rate: 7 percent

• Marginal standing facility (MSF) rate: 9 percent

• Bank Rate: 9.0 percent

• Cash Reserve Ratio: 4 percent

Besides,

• Liquidity under overnight repos will continue to be provided at 0.25 percent of bank-wise NDTL at the LAF repo rate

• Liquidity under 7-day and 14-day term repos will continue to be provided at 0.75 percent of NDTL of the banking system through auctions

• Daily one-day term repos and reverse repos to smooth liquidity will be continued

Assessment of the macroeconomic situation in India

• Domestic activity weakened in Q2 of 2014-15, and activity is likely to be muted in Q3 also because of a moderate kharif harvest.

• The deficiency in the north-east monsoon rainfall has constrained the pace of rabi sowing, except in the southern States.

• Despite the uptick in September 2014, the growth of industrial production slumped to 1.1 per cent in Q2 with negative momentum in September 2014, unable to sustain the improvement recorded in the preceding quarter.

• In the services sector, the October 2014 purchasing managers’ survey indicates deceleration in new business. In contrast, tourist arrivals and domestic and international cargo movements have shown improvement.

Assessment of the macroeconomic situation of Global Economy

• Since September 2014, the global economy has slowed, though the recent sharp fall in crude prices will have a net positive impact on global growth.

• The recovery in the United States is broadening on the back of stronger domestic consumption, rising investment and industrial activity.

• In the Euro area, headwinds from recessionary forces continue to weaken industrial production and investment sentiment.

• In Japan, growth may be picking up again on the back of stronger exports, helped in part by further quantitative and qualitative easing that has led to a depreciation of the yen.

• In China, disappointing activity and still-low inflation have prompted rate cuts by the People’s Bank of China.

• In other major emerging market economies (EMEs), downside risks to growth from elevated inflation, low commodity prices, deteriorating labour market conditions and stalling domestic demand have become accentuated.

Comment

This is the fifth consecutive time that the RBI has kept key interest rates unchanged despite clamours from the industry to cut rates to boost economy. RBI Governor Raghu Ramrajan cited WPI inflation as the rationale for the status quo policy.

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