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15 Mar 2012
In its Mid-Quarter Review of Monetary Policy Mar-12, RBI kept the policy rates unchanged. The policy decisions were in line with our expectations. Policy Rate changes Repo rate unchanged at 8.5% Reverse Repo rate and Marginal Standing Facility (MSF) Rate automatically stands unchanged at 7.5% and 9.5% respectively. Cash Reserve Ratio (CRR) unchanged at 4.75% of Net Demand and Time Liabilities (NDTL) Forward guidance statement Growth-inflation dynamics show that no further rate tightening is needed and future actions will be towards lowering the rates. The timing and magnitude of future rate actions depends on inflation outlook going forward.
STCI
15 Mar 2012
However, in this policy it just lists inflation as the factor for future rate actions (as mentioned above). Further, RBI mentions that upside risks to inflation have increased in recent times on account of following factors: Rise in crude oil prices on account of both geo-political concerns and abundant global liquidity Fiscal slippage Rupee depreciation Suppressed inflation in fuel, fertilizer and power because of administered prices in these products With this continued focus on inflation, the Review statement reads surprisingly more hawkish than expected by most analysts. Fiscal Situation: RBI mentions that fiscal conditions have deteriorated as key deficit indicators for Apr-Jan are over the budgeted estimates for full year. It reiterated that fiscal deficit has been adding to inflationary pressures and credible fiscal consolidation is important factor in shaping inflation outlook. External Sector: RBI raised concerns over widening current account deficit. The exports growth is lower because of weak external demand where imports are rising because of higher oil prices. Financing of CAD remains a challenge given the uncertain global situation.
STCI
15 Mar 2012
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