RBI raised Repo Rate by 25 basis points to 8 percent

Reserve Bank of India (RBI) raised the Repo rate under Liquidity Adjustment Facility (LAF) by 25 basis points from 7.75 percent to 8 percent. Besides, it kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4 percent of net demand and time liability (NDTL). The decision to raise the repo rate and keep the CRR unchanged was announced by the RBI in its Third Quarter Monetary Policy Review on 28 January 2014.

As a result, the reverse repo rate under the LAF stands adjusted at 7 percent, and the marginal standing facility (MSF) rate and the Bank Rate at 9.0 percent.

The Main highlights of the Third Quarter Policy Review
• Global uncertainty continues to surround the prospects for some emerging economies, with domestic fragilities getting accentuated. Financial market contagion is a clear potential risk.
• Domestically, some loss of momentum of growth is likely in Quarter 3 of 2013-14, despite a strong pick-up in rabi sowing.
• The current account deficit (CAD) for 2013-14 is expected to be below 2.5 percent of GDP as compared with 4.8 percent in 2012-13.
• Over the ensuing 12-month horizon, and with the current policy stance, the CPI inflation is expected to be on the upside risk of 8 percent in 2014-15.
• Real GDP growth can be expected to firm up from a little below 5 percent in 2013-14 to a range of 5 to 6 percent in 2014-15, with risks balanced around the central estimate of 5.5 per cent.
• Following the recommendation of the Dr. Urjit Patel Committee, monetary policy reviews will ordinarily be undertaken in a two-monthly cycle, consistent with the availability of key macroeconomic and financial data. Accordingly, the next policy review is scheduled on 1 April 2014.