August 9, 2013

India Monetary Policy Review – August 2013

At its Quarterly Monetary policy review on the 30th of July, the Reserve Bank of India (RBI) maintained the benchmark repo rate at 7.25%, and the reverse repo rate at 6.25%.

  • At its Quarterly Monetary policy review on the 30th of July, the Reserve Bank of India (RBI) maintained the benchmark repo rate at 7.25%, and the reverse repo rate at 6.25%.
  • The weak rupee, high current account deficit and concerns about outflows from Foreign Institutional Investors have influenced the decision.
  • The Cash Reserve Ratio (CRR) was held at 4%, and the Statutory Liquidity Ratio (SLR) was maintained at 23%.
  • This comes against a backdrop of much tighter liquidity conditions, including raising the Marginal Standing Facility rate to 10.25% (from 8.25%).
  • These tightened measures will remain in place till stability is restored in the foreign exchange market.
  • Growth indicators, in terms of both production and services remain weak. Food price inflation has risen, whilst core inflation has moderated further.
  • The government has instituted measures to boost inflows such as boosting FDI in retail and telecoms; however, supply-side bottlenecks need to be urgently addressed.
  • Group Economics is forecasting the repo rate to fall between 6.75-7% by March 2014. Any rate cut, however, will be deferred until end 2013 or early 2014 – given the unsettled external situation.
  • Raghuram Rajan will become the new Governor of the RBI in early September, replacing the incumbent, Duvvuri Subbarao.

For further analysis download the full report.