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Highlights of RBI monetary policy review

Read more on:    India | Rbi | Highlights | Gdp | Bank Of India
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 The Reserve Bank of () left interest rates unchanged for the second time since June, in line with expectations, while cutting its growth forecast and lifting its inflation outlook as economic conditions deteriorate.

The RBI kept its policy repo rate at 8 percent and left the cash reserve ratio for banks at 4.75 percent. CRR is the share of deposits banks must keep with the RBI.

"In the current circumstances, lowering policy rates will only aggravate inflationary impulses without necessarily stimulating growth," RBI Governor Duvvuri Subbarao wrote in the monetary policy review, adding the central bank's primary focus remains inflation control.

A Reuters poll of 20 economists last week showed all but one expected the RBI to hold rates steady.

Following are from the monetary policy statement and comments from top central bank officials:

Policy measures

* Keeps repo rate unchanged at 8 percent.

* Reverse repo stays at 7 percent.

* Cash reserve ratio stays at 4.75 percent.

* Statutory Liquidity Ratio cut to 23 percent of deposits from 24 percent, effective August 11.

Policy stance

* Lowering policy rates now would only aggravate inflationary impulses without necessarily stimulating growth.

* Primary focus of monetary policy remains inflation control.

* Decline in non-food manufactured inflation not commensurate with growth moderation.

* Will respond to liquidity pressures including by way of open market operations.

Forecasts

* Baseline growth forecast for 2012/13 cut to 6.5 percent from 7.3 percent.

* Baseline wholesale price index inflation projection for March 2013 raised to 7 percent, from 6.5 percent.

* The RBI has scope to cut interest rates during this calendar year : cbank chief

Inflation stance

* Conduct of monetary policy will continue to condition and contain perception of inflation in the range of 4.0-4.5 per cent.

* Challenge for monetary policy is to maintain its priority of containing inflation and lowering inflation expectations.

* Deficient and uneven monsoon performance so far will have an adverse impact on food inflation.

* Going forward, further pressure on non-food manufactured products inflation cannot be ruled out.

* Outlook for food and commodity prices, especially crude oil, has turned uncertain.

* The reversal in crude oil prices in recent weeks may add to domestic inflationary pressure.

* Input price pressures due to exchange rate movements and infrastructure bottlenecks in coal, minerals and power may push up non-food manufactured products inflation.

* While growth has slowed down significantly, inflation remains well above comfort zone.

* Wage inflation in rural and urban areas remains relatively high.

* India's core inflation momentum is rising; calls it "disturbing" : cbank chief

Growth, economy

* Large twin deficits pose significant risks to macroeconomic stability.

* Risks of potentially large negative spillovers from US, and euro area, have increased.

* External risks to the outlook for the Indian economy are intensifying.

* If the rainfall deficiency persists, agricultural production could be adversely impacted.

* Need immediate action on fuel, fertiliser subsidies to meet the target of restricting the subsidy.

* Data for industrial activity in Apr-May suggests that industrial production, despite some recovery, remains weak.

* M3 growth projection for 2012-13 has been retained at 15 per cent and the growth in non-food credit of scheduled commercial banks at 17 per cent.

* Fiscal measures from the government would not necessarily prompt the central bank to take monetary policy action : cbank chief

* SLR cut motivated to shift banks' portfolio from government to commercial sector: cbank chief

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