RBI ready for policy gear shift to enter growth lane

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SummaryDespite the slowdown in the economy and moderating inflation, the Reserve Bank of India on Tuesday chose to leave the key repo rate unchanged at 8% and the cash reserve ratio at 4.25%.

just 0.7% though it jumped 8.2% y-o-y in October largely due to a base effect. GDP for the September quarter came in at 5.3% higher than the 5.5% for the June quarter.

“The RBI has taken a cautious stance on easing policy rates because retail and wholesale inflation have shown contradictory trends,” C Rangarajan, chairman of the Prime Minister's Economic Advisory Council observed, adding “perhaps the RBI wants to start a policy, of cutting rates, that could be continued. Wholesale inflation for November came in at 7.24% with core inflation at a three-year low of 4.5%.

Leif Eskesen, chief economist for India and ASEAN at HSBC said: “The RBI kept policy rates on hold in light of the persistence of inflation and lingering upside risks to inflation. However, it is gearing up for potential policy rate cuts early next year, assuming inflation risks recede and policy progress on other fronts is sufficient.”

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