RBI remains hawkish

By | April 1, 2014

No surprise from the Reserve Bank of India. The central bank kept its benchmark repurchase rate at 8 per cent.

Economists had anticipated the RBI would keep interest rates at an elevated rate to combat inflation.

Wholesale price inflation was down to 4.7 per cent in February, from 5.1 per cent in January, while consumer price inflation slowed to 8.1 per cent year-on-year in February from 8.8 per cent in January. Despite this trend, core inflation remains a headache for the RBI.

Scotiabank strategist Sacha Tihanyi said Governor Raghuram Rajan is “laser-focused on inflation” so he is likely to hold rates for at least another month or two, before easing back.

The RBI also kept the reverse repo rate at 7 per cent. It kept the cash reserve ratio at 4 per cent.

Quick recap of Mr Rajan’s earlier decisions:

  • In his first monetary policy decision back in September, Mr Rajan surprised forecasters with a quarter-point rate hike.
  • In December he held rates steady in the face of expectations for a hike.
  • In January he hiked the benchmark repo rate by a quarter point to 8 per cent, against consensus forecasts that he would hold steady.

Mr Rajan could have fewer surprises from now on. An independent committee appointed by the governor earlier this year laid out a clear inflation targeting regime. It set the consumer price inflation bulls-eye at 4 per cent, with a band of 2 percentage points on either side.

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