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The PMEAC Chairman, Dr C. Rangarajan, today said that the Reserve Bank of India’s move to keep all the key policy rates unchanged in its mid-quarterly policy review is on expected lines and the central bank might start revising downwards its monetary stance only if inflation continues to decline further.
“...the move is on expected lines...if inflation continues to show a declining trend, then perhaps the RBI will start reversing its policy. Therefore, it is predicated only on one assumption and that is the inflation going down,” Dr Rangarajan said.
He added that inflation will start declining, “particularly food prices will come down more sharply as we have indicated, not only in December but in January as well’’.
“The impact of the base effect will be seen as food prices generally come down in winter season... so I do believe inflation will come down sharply and that might provide the correct environment in which the RBI can act further in the direction of easing action,” he said.
In its policy review today, the RBI maintained repo (rate at which banks borrow from the RBI) at 8.5 per cent, and reverse repo (rate at which the RBI borrows from banks) at 7.5 per cent. The halt to increase in interest rates comes after the RBI hiked the rates 13 times since March 2010.
The central bank has also decided to retain the cash reserve ratio (CRR), the amount banks need to park with the RBI, at six per cent. Industry was expecting a marginal cut in the CRR to induce liquidity in the system to promote investments.
Meanwhile, the Planning Commission Deputy Chairman, Mr Montek Singh Ahluwalia, declined to comment on the RBI’s policy stance.
“If there is no change (in policy rates), then what is there to comment on. I don’t want to speculate (on the impact of the pause),” he said.
The RBI will make an assessment of its growth and inflation projections for 2011-12 in the third quarter review next month, the policy statement said.
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