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

Sep 30, 2014 13:50 IST

The Reserve Bank of India (RBI) announced fourth Bi-Monthly Monetary Policy Statement on 30 September 2014. RBI in its fourth bi-monthly monetary policy statement has kept the policy rates unchanged at 8 percent.

Based on the assessment of the current and evolving macroeconomic situation,the following changes has been taken

•    The Repo rate under the liquidity adjustment facility (LAF) unchanged at 8.0 per cent

•    The cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liabilities (NDTL)

•    Reduced the Statutory Liquidity Ratio under the export credit refinance (ECR) facility from 32 per cent of eligible export credit outstanding to 15 per cent with effect from 10 October 2014

•    Continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 7-day and 14-day term repos of up to 0.75 per cent of NDTL of the banking system through auctions

•    Continue with daily one-day term repos and reverse repos to smooth liquidity

•    The reverse repo rate under the LAF remained unchanged at 7.0 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 9.0 per cent.

This is the fourth 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.

Assessment of the macroeconomic situation in India

Since the third bi-monthly monetary policy statement of August 2014, global activity has been recovering slowly from the setback in Q1 of 2014, on the back of strengthening consumer spending and gradually improving labour market conditions in advanced economies (AEs) like the United States.

Domestic activity appears to have come off somewhat after the stronger-than-expected upturn in Q1 of 2014-15. In Q2, the growth of industrial production slumped in July 2014, as capital goods production followed consumer durables into contraction.

Exports cushioned the fall in manufacturing output, with the Reserve Bank’s industrial outlook survey indicating expansion in export orders.

Non-food credit growth decelerated in September 2014, the lowest level since June 2001, despite liquidity conditions remaining comfortable and deposit growth remaining normal.

With liquidity conditions easing, the recourse to ECR has fallen off substantially to about 10 per cent of the outstanding export credit eligible for refinance.

The RBI retained the growth projection at 5.5 per cent for the current fiscal 2014-15.

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