GOOD READS

RBI leaves key rates unchanged

The Reserve Bank of India (RBI) seal is pictured on a gate outside the RBI headquarters …Contradictory to expectation The Reserve Bank of India left repo rates unchanged at 7.75 percent. Experts had expected a 25 basis points hike in repo rates in the RBI’s mid-quarter review of the monetary policy for 2013-14.  The RBI also decided to keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liability.

The RBI Governor, Raghuram Rajan, however, warned that there would be action taken outside of the policy announcement if food prices spiral out of control again.

"The policy decision is a close one. Current inflation is too high," said the RBI in its policy statement. However, the RBI also cited its reluctance to over-react given the "wide bands of uncertainty" surrounding the outlook for inflation amid signs of sharply falling vegetable prices and "the weak state of the economy."

"High inflation at both wholesale and retail levels risks entrenching inflation expectations at unacceptably elevated levels, posing a threat to growth and financial stability," the report stated.

Also Read: RBI rates: What they really mean

The repo rate is the rate banks pay when they borrow money from the central bank to meet their short term fund requirements. Reverse repo rate is the interest rate that the RBI pays to commercial banks when they keep their surplus short term funds with the central bank.

Also See: How are budget deficits and interest rates related?

RBI has highlighted the need for the government to consolidate the fiscal deficit in its report on the Macroeconomic Developments earlier in January. The fiscal deficit is the responsibility of the ... more 
RBI has highlighted the need for the government to consolidate the fiscal deficit in its report on the Macroeconomic Developments earlier in January. The fiscal deficit is the responsibility of the central government while the monetary policy is handled by the RBI. It is important to understand the connection between the two. less 
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Yahoo Finance India
Mon 25 Feb, 2013 9:30 AM IST

The RBI added it would gauge the impact of any decision by the U.S. Federal Reserve to withdraw its monetary stimulus. The U.S. central bank concludes its policy meeting later in the day.
The RBI had raised interest rates by a quarter percentage point at its previous reviews in September and October. No review was held in November.

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