Reserve Bank of India kept its Policy Repo Rate unchanged at 8.5 percent at its Mid-quarter Review

The Reserve Bank of India on 16 December 2011 left its policy rate unchanged at a three-year high of 8.5 per cent. RBI paused the hike after 13 consecutive rate hikes since March 2010.

The Reserve Bank of India kept its policy repo rate unchanged at 8.5 percent at its mid-quarter review two days after data showed November wholesale price index inflation at 9.11 percent, far lower than the 9.73 percent clocked in October.

The RBI also left the cash reserve ratio unchanged at 6 percent, despite market specualtion that it might cut the ratio in order to boost market liquidity.

The central bank noted that while inflation remained on the projected trajectory, downside risks to growth clearly increased. It reiterated that further rate hikes might not be warranted as the growth momentum was moderating.
Retaining its option to raise rates again if inflationary expectations persist, the RBI mentioned that the timing and magnitude of further action would depend on how things panned out on the inflation and rupee fronts.

RBI’s policy statement stated that inflation risks remain high and inflation could quickly recur as a result of both supply and demand forces. Also, the rupee remains under stress.

The central bank that the GDP growth declined to 6.9 per cent in the second quarter (July-September) from 7.7 per cent in the first (April-June), and key deficit indicators worsened mainly due to higher expenditure and lower revenues.

Noting that liquidity conditions were tight, consistent with the policy intent, the RBI mentioned that it would conduct open market operations as and when it felt the need for it.