RBI keeps interest rates unchanged
19 Jun 2012 11:46 PM GMT
The Reserve Bank of India [RBI] on Monday kept interest rates unchanged giving priority to checking inflation over growth, disappointing India Inc and retail borrowers who were expecting at least 0.25 per cent rate cut.
It also rejected the widespread demand for reduction in cash reserve ratio [CRR] to pump in more money into the banking system.
Unveiling the mid-quarter monetary policy review, RBI said, ‘reduction in the policy interest rate at this juncture, rather than supporting growth, could exacerbate inflationary pressure’.
While the short term lending rate [repo] has been kept unchanged at 8 per cent, the CRR, portion of deposits banks are required to park with the RBI, will be 4.75 per cent.
RBI’s action, according to finance Minister Pranab Mukherjee, was influenced by the current price situation.
‘[High inflation]... might have weighed their [RBI’s] decision making process... normally in mid-quarter review, it is not necessary for the governor to consult the minister,’ he said.
Assocham President Rajkumar Dhoot said, 'We are disappointed that RBI ignored all expectations, including observations of the Finance Minister about the need for a rate cut.'
Chairman of Prime Minister’s Economic Advisory Council C Rangarajan said RBI has probably decided to wait for more time before taking policy action.
‘Perhaps the RBI wants to wait for some more time... the end of the quarter may be the appropriate time to make some decision,’ he said.
‘I would think that six weeks from now, when the next review takes place... that would be the critical point... when policy decision would be clear,’ Rangarajan said.
The only important decision that RBI announced in its mid-quarter review was to provide some help to exporters. It raised the export refinance credit limit from 15 per cent to 50 per cent with a view to releasing additional liquidity of Rs 30,000 crore.
Countering the argument that high interest rate has been the reason behind the record dip in growth, RBI said the real effective bank lending rates are still lower than the high growth period of 2003-2008.
‘This suggests that factors other than interest rates are the contributing more significantly to the growth slowdown,’ RBI added.
It also rejected the widespread demand for reduction in cash reserve ratio [CRR] to pump in more money into the banking system.
Unveiling the mid-quarter monetary policy review, RBI said, ‘reduction in the policy interest rate at this juncture, rather than supporting growth, could exacerbate inflationary pressure’.
While the short term lending rate [repo] has been kept unchanged at 8 per cent, the CRR, portion of deposits banks are required to park with the RBI, will be 4.75 per cent.
RBI’s action, according to finance Minister Pranab Mukherjee, was influenced by the current price situation.
‘[High inflation]... might have weighed their [RBI’s] decision making process... normally in mid-quarter review, it is not necessary for the governor to consult the minister,’ he said.
Assocham President Rajkumar Dhoot said, 'We are disappointed that RBI ignored all expectations, including observations of the Finance Minister about the need for a rate cut.'
Chairman of Prime Minister’s Economic Advisory Council C Rangarajan said RBI has probably decided to wait for more time before taking policy action.
‘Perhaps the RBI wants to wait for some more time... the end of the quarter may be the appropriate time to make some decision,’ he said.
‘I would think that six weeks from now, when the next review takes place... that would be the critical point... when policy decision would be clear,’ Rangarajan said.
The only important decision that RBI announced in its mid-quarter review was to provide some help to exporters. It raised the export refinance credit limit from 15 per cent to 50 per cent with a view to releasing additional liquidity of Rs 30,000 crore.
Countering the argument that high interest rate has been the reason behind the record dip in growth, RBI said the real effective bank lending rates are still lower than the high growth period of 2003-2008.
‘This suggests that factors other than interest rates are the contributing more significantly to the growth slowdown,’ RBI added.
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