India Monetary Policy – August 2014

The RBI held the policy Repo rate at 8% in its latest meeting – as broadly anticipated. The Statutory Liquidity Rate was cut by 50bp to 22% to enable banks to free up capital for lending, and to boost their liquidity coverage.

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  • The RBI held the policy Repo rate at 8% in its latest meeting – as broadly anticipated.
  • The Statutory Liquidity Rate was cut by 50bp to 22% to enable banks to free up capital for lending, and to boost their liquidity coverage.
  • This time around, there was a clear emphasis on moderating the medium term inflation outlook, with a special emphasis on a 6% CPI target for January 2016.
  • Headline and Core retail inflation have eased markedly in June, partly driven by ‘base effects’.
  • Inflation expectations, though, remain high, despite easing moderately.
  • The uncertainty regarding the monsoon remains a key risk for the inflation (and thereby monetary policy) outlook.
  • India’s foreign exchange reserves have expanded to USD320.6bn, driven by international inflows and a restrained current account deficit.
  • We are forecasting the RBI to remain on hold at 8% over the course of the 2014-15 Financial year, with risks evenly balanced.

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