RBI raises repo rate by 25 bps to 8%

RBI announces to undertake monetary policy reviews on two-monthly cycle

Highlights of Monetary Policy Review:

* Repo rate hiked 25 bps from 7.75% to 8.0%

* CRR unchanged at 4.0%

* MSF rate and the Bank Rate hiked by 25 bps each to 9.0%.

* Global recovery is gaining traction, but it is still uneven and subdued in the Euro area and Japan and a slowdown in China seems to be underway.

* Domestically, some loss of momentum of growth is likely in Q3FY14

* Fiscal tightening through Q3 and Q4 is likely to exacerbate the weakness in aggregate demand.

* Lead indicators of services suggest a subdued outlook, barring some pick-up in transport and communication activity.

Policy Stance and Rationale

* CPI inflation excluding food and fuel has remained flat

* WPI inflation excluding food and fuel has risen.

* Dr. Urjit Patel Committee has indicated a glide path for disinflation that sets an objective of below 8% CPI inflation by January 2015 and below 6% CPI inflation by January 2016.

* There are upside risks to the forecast of 8%.

* GDP growth can be expected to firm up from a little below 5% in 2013-14 to a range of 5 to 6% in 2014-15, with risks balanced around the central estimate of 5.5%.

* On recommendations of Dr. Urjit Patel Committee, monetary policy reviews will ordinarily be undertaken in a two-monthly cycle, consistent with the availability of key macroeconomic and financial data.

* Next policy review is scheduled on 01 April 2014.

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