New Delhi: With the economic growth beginning to lose momentum, the Reserve Bank on Friday pressed the pause button on rate hikes and indicated reduction in interest rates "from this point on".

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After 13 hikes in key policy rates since March 2010, the the Reserve Bank of India (RBI) this time opted to keep the repo rate, at which it lends to the banks, unchanged at 8.5 percent, compelled by the worsening global economic outlook and decelerating domestic growth.
    
Reverse repo (rate at which the RBI borrows from banks) is also kept at 7.5 percent. The RBI also decided to retain the cash reserve ratio, the amount banks need to park with RBI, at 6 percent. The industry was expecting a minor cut in CRR to induce liquidity in the system and promote investments.
   
The pause in rate hikes comes at a time when inflation has started showing signs of moderation.     

In its mid-quarter review of monetary policy, RBI said "...downside risks to growth have clearly increased. Further rates hike may not be warranted."
   
Commenting on the RBI's decision to maintain status quo, Finance Minister Pranab Mukherjee said the policy would help in regaining the growth momentum with improved macro-economic parameters in the remaining period of the current fiscal. "I believe inflation will moderate further in the coming weeks and therefore, the announcement on Friday is welcome," he added.
   
On rate cut, RBI Governor D Subbarao said, "I cannot really speculate on when we might start cutting rates, but that is an event, that an action that is on the way forward."
    
The industry said the pause in hikes was on the expected lines while cut in interest rates would have boosted the sagging sentiments.
   
On nearly 17 percent fall in value of rupee vis-a-vis US dollar since August, RBI said that it is closely monitoring the development and will respond to the evolving situation.
   
It said the past tight monetary policy coupled with global developments and domestic policy uncertainties led to decline in growth.  The industry said RBI's commitment to address the slowdown in growth in future actions was reassuring.
    
"The RBI's guidance that monetary policy actions from now on will respond to the slowdown in growth is reassuring," CII Director General Chandrajit Banerjee said.
    
FICCI Secretary General Rajiv Kumar said "indications of a reversal in rate cycle is a welcome step and is a clear departure from the monetary tightening phase".
    
Assocham hailed the RBI's move, stating that it was "a very bold and appreciative step".
    
On the slide of rupee against dollar, the RBI said it was closely watching the situation and will respond appropriately, even as the local currency recovered against dollar by 2 percent in the opening trade.
    
On the global scenario, the central bank said since October the sitution coupled with euro zone crisis has worsened significantly and is posing threats to emerging market economies (EMEs), including India.
    
Referring to its earlier GDP growth projection of 7.6 percent for the current fiscal, RBI said "considering the global and domestic macroeconomic situation, the downside risks to the RBI growth projection, as set out in the second quarter review (in October), have increased significantly".
    
The central bank will come out with a formal assessment of its country's economic growth and inflation projection in January.
    
The policy further said that the economic slowdown is contributing to decline in prices, but warned that inflation could bounce back on account of supply-demand mismatch.
     
Analyists and experts said the policy was on expected lines.

Experts welcome RBI decision

Meanwhile, the Reserve Bank's move to pause its hawkish monetary policy stance is on expected lines as high interest rates affect the economic growth, bankers and analysts said.
    
Welcoming the policy stance, ICICI Bank chief Chanda Kochhar said the policy is a realistic assessment of the prevailing macroeconomic situation.
    
"This is a positive step as growth has been moderating and inflation, though still above comfort levels, has started showing signs of easing.
   
"The policy statement has addressed concerns on the interest rate side, by clearly indicating a likely reversal in the cycle with monetary policy actions being directed towards addressing growth related issues going forward," she said.
   
Bank of India Chairman Alok K Misra said, "By keeping rates unchanged and not talking any liquidity enhancing measures, RBI has signalled it remains single-mindedly focused on inflation."
    
He further said that Friday's pause will help anchor inflationary expectations. Given the overall macroeconomic environment, it should serve the economy well if RBI begins its easing process, he added.
   
"RBI's action is on expected lines. While a sharp decline in second quarter economic growth was pointing for a rate cut, sustained high level of core inflation is a strong argument against rate cut," Fitch Ratings Director Devendra Kumar Pant said.
   
Another ratings major ICRA said the RBI kept the policy rate and the CRR unchanged in its mid-quarter policy review as inflationary pressures are yet to diminish particularly in the case of non-food manufactured products.
   
"...the guidance provided on Friday was distinctly less hawkish, highlighting the increasing concerns regarding the moderation in economic growth," Naresh Takkar, MD and CEO of ICRA Ltd said.
   
"Strong rate-tightening steps taken by the RBI in the last few quarters have badly impacted the investment & consumption cycle.
    
Immediately after the RBI policy review announcement, stock market showed showed mixed response. the BSE benchmark index Sensex pared its initial gains and ended at 15,491.35, down 345.12 points.
    
Commenting on RBI's move and its impact on the stock market, APE Securities Senior Director, Research, Kislay Kanth said, "The decision by RBI to leave everything unchanged is moderately negative on the overall market sentiments, because much was anticipated from this meeting.
    
Only the recent interventions in the currency markets is a moderate positive and we believe that the RBI should be little more proactive than what we saw over the last few months".

The industry said RBI's commitment to address the slowdown in growth in future actions was reassuring.
    
"The RBI's guidance that monetary policy actions from now on will respond to the slowdown in growth is reassuring," CII Director General Chandrajit Banerjee said.
    
FICCI Secretary General Rajiv Kumar said "indications of a reversal in rate cycle is a welcome step and is a clear departure from the monetary tightening phase".
    
Assocham hailed the RBI's move, stating that it was "a very bold and appreciative step".
    
On the slide of rupee against dollar, the RBI said it was closely watching the situation and will respond appropriately, even as the local currency recovered against dollar by 2 percent in the opening trade.     

On the global scenario, the central bank said since October the sitution coupled with euro zone crisis has worsened significantly and is posing threats to emerging market economies (EMEs), including India.
    
Referring to its earlier GDP growth projection of 7.6 percent for the current fiscal, RBI said "considering the global and domestic macroeconomic situation, the downside risks to the RBI growth projection, as set out in the second quarter review (in October), have increased significantly".
    
The central bank will come out with a formal assessment of its country's economic growth and inflation projection in January.
    
The policy further said that the economic slowdown is contributing to decline in prices, but warned that inflation could bounce back on account of supply-demand mismatch.
     
Analyists and experts said the policy was on expected lines.

Can't speculate on rate cuts: Subbarao

However, Reserve Bank Governor D Subbarao on Friday said he cannot speculate on when he will start cutting policy rates, but assured that the central bank will ensure that there is enough liquidity in the system by conducting open market operations.
    
"We have taken into account the inflation situation and also growth moderation. For the moment, we have kept the policy rates steady. However, we will manage liquidity through market operations (but) I cannot speculate when we might start cutting rates," he said while speaking to reporters at an ICAI function here.
    
In its mid-quarterly review of monetary policy on Friday, RBI maintained repo (rate at which banks borrow from RBI) at 8.5 percent, reverse repo (rate at which the RBI borrows from banks) at 7.5 percent.
    
The halt in rate increase comes after 13 hikes since March 2010.
    
The central bank has also decided to retain the cash reserve ratio (CRR), the amount banks need to park with the RBI, at six percent.
    
On the steep fall in the rupee, he said, "Certainly, it will put pressure on inflation, and we have acknowledged that in our review on Friday."
    
The domestic currency had been on a free-fall and it plunged to an all-time record low of sub-54 level on Thursday during intra-day.
     
Last evening, the RBI moved swiftly to check the slide in rupee value and speculations by imposing restrictions on forward trading in the local currency by FIIs and traders and by capping banks' exposure to the forex market.
     
The impact of RBI steps was visible on Friday with the rupee surging by a whopping 143 paise to Rs 52.21 per US dollar in early trade on Friday.

Agencies