The Reserve Bank of India (RBI) indicated on Monday that it will maintain status quo on key rates in order to ensure stability in the currency markets. In its customary document released ahead of the monetary policy review, the RBI, however, said that it would 'endeavour to actively manage liquidity to reinforce monetary transmission that is consistent with growth-inflation balance and macro-financial stability'. The RBI is scheduled to announce the First Quarter Review of Monetary Policy for 2013-14 on Tuesday.
The central bank said that the priority of the monetary policy would be to restore stability in the currency market so that macro-financial conditions remain supportive of growth. 'Recent currency depreciation and upward revisions in fuel prices have increased upside risks to both wholesale and consumer price inflation,' it said in the document 'Macroeconomic & Monetary Developments: First Quarter Review 2013-14'
The RBI said that the recent liquidity tightening measures taken by it had provided 'some breathing time' in the currency markets.
'This strategy will succeed if reinforced by structural reforms to reduce the current account deficit (CAD) and step up savings and investment,' it added.
Analysts also feel that the central bank is likely to maintain a status quo. 'It is widely anticipated that the central bank would maintain status quo on the policy front,' said Federation of Indian Chambers of Commerce and Industry (FICCI) President Naina Lal Kidwai. Kidwai, however, said that the RBI must take into consideration the slowdown in growth especially of industrial sector.
'We need to pay heed to the fact that industrial growth has taken a severe hit. The recently released IIP data indicated a negative 1.6 per cent growth for May 2013, which is very disappointing,' Kidwai pointed out.
'The investment cycle is saddled and a sense of apprehension remains among investors. And this is despite the recent slew of announcements by the government,' she said.
Associated Chambers of Commerce and Industry (Assocham) President Rana Kapoor said that even maintaining status quo would be a big decision, considering the current macroeconomic situation.
'Rate reduction in the monetary policy seems impossible. Status quo itself will be a big decision,' Kapoor, also MD and CEO of Yes Bank, said.
In its last policy review announced on 17 June, the RBI had left key rates unchanged. The current repo rate, the rate at which the RBI borrows money from commercial banks, is 7.25 per cent and the reverse repo rate is at 6.25 per cent. The cash reserve ratio (CRR), or the share of deposits banks must keep with the RBI, is 4 per cent.
The central bank said that the priority of the monetary policy would be to restore stability in the currency market so that macro-financial conditions remain supportive of growth. 'Recent currency depreciation and upward revisions in fuel prices have increased upside risks to both wholesale and consumer price inflation,' it said in the document 'Macroeconomic & Monetary Developments: First Quarter Review 2013-14'
The RBI said that the recent liquidity tightening measures taken by it had provided 'some breathing time' in the currency markets.
'This strategy will succeed if reinforced by structural reforms to reduce the current account deficit (CAD) and step up savings and investment,' it added.
Analysts also feel that the central bank is likely to maintain a status quo. 'It is widely anticipated that the central bank would maintain status quo on the policy front,' said Federation of Indian Chambers of Commerce and Industry (FICCI) President Naina Lal Kidwai. Kidwai, however, said that the RBI must take into consideration the slowdown in growth especially of industrial sector.
'We need to pay heed to the fact that industrial growth has taken a severe hit. The recently released IIP data indicated a negative 1.6 per cent growth for May 2013, which is very disappointing,' Kidwai pointed out.
'The investment cycle is saddled and a sense of apprehension remains among investors. And this is despite the recent slew of announcements by the government,' she said.
Associated Chambers of Commerce and Industry (Assocham) President Rana Kapoor said that even maintaining status quo would be a big decision, considering the current macroeconomic situation.
'Rate reduction in the monetary policy seems impossible. Status quo itself will be a big decision,' Kapoor, also MD and CEO of Yes Bank, said.
In its last policy review announced on 17 June, the RBI had left key rates unchanged. The current repo rate, the rate at which the RBI borrows money from commercial banks, is 7.25 per cent and the reverse repo rate is at 6.25 per cent. The cash reserve ratio (CRR), or the share of deposits banks must keep with the RBI, is 4 per cent.