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Reserve Bank keeps key rates unchanged, hints at revising growth projections

The Reserve Bank of India (RBI) has decided to keep Repo Rate and Cash Reserve Ratio (CRR) unchanged in its fifth-bimonthly monetary policy announced on February 3, 2015. 

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The Reserve Bank of India (RBI) on Tuesday kept the keep Repo Rate and Cash Reserve Ratio (CRR) unchanged in its sixth-bimonthly monetary policy announced on February 3, 2015. 

The repo rate continues to be at 7.75% and CRR at 4%. 

The bank has, however, cut Statutory Liquidity Ratio (SLR) by 50 basis points for commercial banks. The new SLR rate will be 21.5% and will come in effect beginning February 7, 2015. 

Consequently, the reverse repo rate under the LAF remains unchanged at 6.75%, and the marginal standing facility (MSF) rate and the Bank Rate at 8.75%.

The Reserve Bank also indicated that “key to further easing are data that confirm continuing disinflationary pressures. Also critical would be sustained high quality fiscal consolidation…”. "Given that there have been no substantial new developments on the disinflationary process or on the fiscal outlook since January 15, it is appropriate for the Reserve Bank to await them and maintain the current interest rate stance," it said. 

Also Read: Fifth bi-monthly monetary policy document

RBI said, "While inflation declined faster than expected due to favourable base effects during June-November, the upturn in December turned out to be muted relative to projections. Augmenting these data with survey data on falling inflationary expectations as well as data on weak commodity prices and muted rural wage growth, the Reserve Bank projected that it would meet its objective of 6 per cent CPI inflation by January 2016. Having committed in public statements to initiate a change in the monetary policy stance as soon as incoming data permitted, the Reserve Bank cut the policy rate on January 15, 2015." 

Also Read: RBI brings festival cheer to the industry, cuts repo rate by 25 basis points

The Bank further said that the outlook for growth has improved modestly on the back of disinflation, real income gains from decline in oil prices, easier financing conditions and some progress on stalled projects. "These conditions should augur well for a reinvigoration of private consumption demand, but the overall impact on growth could be partly offset by the weaker global growth outlook and short-run fiscal drag due to likely compression in plan expenditure in order to meet consolidation targets set for the year," RBI said. 

"The revised GDP statistics (base 2011-12) released on January 30 along with advance estimates for 2014-15 expected on February 9, 2015 will need to be carefully analysed and could result in revisions to the Reserve Bank’s growth projections for 2015-16," it said. 

Also Read: Base year change shots up GDP growth to 6.9% in 2013-14

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