RBI had no option other than maintaining a status quo: Economists

31 July, 2012

India's central bank, the Reserve Bank of India (RBI) has maintained a status quo regarding the key policy rates and CRR during its first quarter monetary policy review.

SPEAKING ON the steps taken by the RBI today, economists say that the central bank had no other choice in the wake of high inflation and inadequate monsoon. “It was expected. Since last 15 days the RBI governor was making statement that inflation is high and unless the government reduces fiscal deficit, it will not be possible for the RBI to bring down repo rate. So I am not surprised that rates have not been reduced,” said DH Pai Panandiker, President, RPG Foundation, an economic policy group.

“This is in expected lines because monsoon is very dull, rupee is very low; so inflation will remain high. It means the RBI was left with no other choice than keeping the rates on hold,” said Jagannadham Thunuguntla, Equity Head, SMC Global Securities.

Economic analysts also said that the RBI's move to not touch the existing policy rates will have a negative impact on the growth rate in coming times. “ Growth is going to come down. RBI has itself said that it expects the growth rate at 6.5% (during FY2012-13). Earlier the RBI has predicted 7.3% growth rate. Monsoon is delayed and inadequate. This will impact production and prices,” said Panandiker.

“This year the growth rate would be sub-6%. The current RBI step will add to the woes related with economic growth,” said Thunuguntla.

Today the RBI after its first quarter monetary policy review announced that the repo rate will not be changed and it will remain at 8%. The RBI did not touch the reverse repo rate as well and kept it at 7% The rate of Cash Reserve Ration also remains same at 4.75%.