RBI maintains status quo; indicates rate cut in early 2015

Mumbai - Disappointing industry and the government, RBI Tuesday chose not to go for a rate cut for fifth time in a row but held out a promise of a softening stand in the next review due in February.

While keeping the short term lending (repo) rate unchanged at 8 percent, RBI Governor Raghuram Rajan said that "a change in the monetary policy stance at the current juncture is premature".

"However, if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle," he said.

While industry reacted with disappointment saying the RBI has not been accommodating, while the government, which has also been pitching for a rate cut, said it looked forward to the central bank supporting the revival of growth and employment.

The repo rate continues to be at 8 percent while the cash reserve ratio has also been retained at 4 percent.

Following the policy announcement, most of the bankers said that there will be no change in lending and deposit rates for now.

Rajan, however, said that the industry was being myopic and asserted that the central bank is for the "strongest possible growth".

"I think there is a misconception in corporate India that the central bank is not concerned about growth," Rajan said.

Asserting that RBI is not against growth but wants the strongest possible growth while keeping inflation under check, a combative Rajan said, "How do you bring these two together? By bringing inflation down. Otherwise, we are going to have this high inflation and low growth scenario again and again.

"And so, I think it is very shortsighted when people comment that you (RBI) are not helping growth this quarter."

The GDP grew at 5.3 percent in the second quarter of this fiscal as against 5.7 percent in the first quarter.

Following the RBI's decision, the BSE's 30-share index Sensex closed at 28,444, down 115.61 points or 0.40 percent.

On the inflation trajectory, Rajan said he expects it to ease further and average at the 6 percent.

"Over the next 12-month period, inflation is expected to retain some momentum and hover around 6 percent, except for seasonal movements, as the disinflation momentum works through," he said after his bi-monthly review of the monetary policy.

On her part, SBI Chairperson Arundhati Bhattacharya said that interest rates are likely to remain unchanged after RBI's status quo.

ICICI Bank chief Chanda Kochhar said that "the statement that a change in monetary policy stance is likely early next year if the current positive trends continue is very welcome."

"The results of government actions to energise investment activity should start playing out in the coming months. As this happens and interest rates moderate, we should see an improvement in growth going forward," she added. (PTI)