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The RBI is in no hurry to cut interest rates despite inflation trending low for several months now and there being no obvious immediate reason why it should move up sharply. Raghuram Rajan, the RBI governor, may have good reasons to be cautious though, considering what happened during the previous governor D. Subbarao’s tenure. He […]
Continue ReadingThe Reserve Bank of India (link) did the predictable by holding on to rates at current levels in its quarterly monetary policy review. The repo rate has been retained at 7.25% and the reverse repo rate has been kept at 6.25%. Repo is when banks borrow from the RBI to meet temporary funds requirement and the reverse repo is when banks park surplus funds with the RBI.
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RBI’s credit policy came with some welcome measures. India’s central bank has taken the following monetary policy measures:
Continue ReadingRBI’s quarterly policy announcement would have normally continued with its policy stance over the past few months. But anticipation of a change or a pause had built up, given the government winning the trust vote, and inflation easing (from 11.91% to 11.89%, how does that constitute easing). The changed political and supposedly economic environment would give it legroom to pause interest rate hikes.
Indian companies would have expected some action from the RBI to hike lending rates, but the pace of change must have left them worried. The RBI has hiked the repo rate –the rate at which RBI lends in the interbank market- by 50 basis points to 8.5% and has hiked the cash reserve ratio –the portion of deposits kept in reserve by banks- also by 50 basis points.