Raghuram Rajan pulls repo rate surprise, says headline inflation dictated RBI stance

Reuters Posted online: Wednesday, Dec 18, 2013 at 0000 hrs
Mumbai : India needs to see a substantial softening of both headline inflation as well as some momentum in the right direction for core inflation, the Reserve Bank of India (RBI) Governor Raghuram Rajan said today after holding repo rate steady, a possibility widely discounted by most analysts.

The short-term lending rate was kept unchanged at 7.75 per cent, while the cash reserve ratio (CRR) remained at 4 per cent, the Reserve Bank of India said in its Mid-Quarter Monetary Policy Review.

"There are indications that vegetable prices may be turning down shortly ... our current reading from the metros suggest a significant fall in vegetable prices both at the wholesale and retail level which gives us reason to keep interest rates stable," Raghuram Rajan speaking at the post policy press conference said.

The Reserve Bank of India (RBI) unexpectedly kept the country's policy interest rates on hold on Wednesday, despite calling current inflation too high, citing the prospect of easing retail prices and its concerns about the weak domestic economy.

Raghuram Rajan added the RBI was trying to calibrate monetary policy primarily to target inflation in an environment where growth is weak.