Friday, December 16, 2011

Reserve Bank of India Pauses Repo Rate at 8.50%

The Reserve Bank of India [RBI] paused its repo rate at 8.50% and also held the reverse repo rate at 7.50%, and cash reserve ratio at 6 percent.  The RBI said: "On the domestic front, growth is clearly decelerating. This reflects the combined impact of several factors: the uncertain global environment, the cumulative impact of past monetary policy tightening and domestic policy uncertainties.Both inflation and inflation expectations are currently above the comfort level of the Reserve Bank. However, reassuringly, inflationary pressures are expected to abate in the coming months despite high crude oil prices and rupee depreciation. The growth deceleration is contributing to a decline in inflation momentum, which is also being helped by softening food inflation."

The Reserve Bank of India increased the repo rate by 25 basis points at its October and September meetings, after hiking a surprise 50 basis points at its previous meeting to 8.00%, having increased 25 basis points in June, and 50 basis points during the May meeting.  India's key inflation measure, the wholesale price index, increased 9.36% in October, compared to 9.72% in September, 9.78% in August, 9.22% in July, 9.44% in June, 9.06% in May, 8.66% in April, and 8.98% year on year in March, exceeding the Bank's previous estimate of 8%.  

India reported annual GDP growth of 6.9% in the September quarter, down from 7.7% in the June quarter, and 7.8% in the March quarter this year, and 8.3% in the previous quarter.  The RBI revised its growth projections down for 2011-12 to 7.6 percent from 8.0 percent previously, due to downside risks.  The Indian Rupee (INR) has depreciated about 20% against the US dollar so far this year, while the USDINR exchange rate last traded around 52.58


  1. But the question is, when will the RBI cut rates?? Brazil is already loosening policy, and China seems to be turning too, so when for India?

  2. The RBI wont cut rates while inflation is out of control, and part of the inflation problem is structural i.e. poor infrastructure, high sensitivity to food prices, etc. Only if the economy crashes would you start to see rate cuts.

  3. Reserve Bank of India Pauses Repo Rate at 8.50% - Thanks for your info.

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