• 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.

For further analysis download the full report.

• India Monetary Policy – August 2014 (PDF, 233KB)