The RBI, in its first bimonthly monetary policy statement, left the short-term lending rate or repo rate unchanged at eight percent and the Cash Reserve Ratio (CRR) static at four percent. It halved the overnight call money rate to 0.25 percent and increased the seven-day and 14-day repo limits to 0.75 percent from 0.50 percent.

The central bank, which left its policy interest rate unchanged as expected, said it does not expect further near-term policy tightening if headline inflation continues to ease towards the bank's targeted level.

"At the current juncture, it is appropriate to hold the policy rate, while allowing the rate increases undertaken during September 2013-January 2014 to work their way through the economy," said Rajan, who had in previous policy announcements surprised the markets with policy rate changes.
The RBI pegged 2014-15 GDP growth at a central estimate of 5.5 percent. It said the current account deficit for fiscal year 2013-14 would be about 2 percent of GDP.

"Most recently, export growth has slowed partly because of slowdown in demand in partner countries as well as a softening of prices of exports of petroleum products and gems and jewellery," Rajan said.

 * Cash Reserve Ratio (CRR) too unchanged at 4 pc.
 * No rate hike if inflation continues to trend lower.
 * Economic growth for 2014-15 expected at 5.5 pc.
 * CAD expected to come down to 2 pc of GDP in 2014-15.
 * Retail inflation expected to be under 6 pc in 2014.
 * RBI asks banks not to charge penalty for failure to maintain minimum balance in inoperative account.
 * Approval of new bank licences after consulting EC.
 * RBI open to banking mergers, provided competition and stability are not compromised.
 * Industrial activity continues to be a drag on economy.
 * RBI will strive to increase reach of financial services to everyone by using technology and new products.
 * Stress on priority sector lending for greater financial access.
 * Today's was first bi-monthly monetary policy review, next one scheduled for June 3.

"Whether the export slowdown persists as global growth picks up once again remains to be seen. In February, there was a turnaround in portfolio flows as investors largely priced in the effects of taper by US Fed and responded to economic and geo-political developments in emerging markets with re-allocations," he added.
On liquidity, he said the central bank will continue to monitor conditions and ensure adequate flow of credit to the productive sectors.
"Liquidity conditions have tightened in March, partly on account of year-end ‘window dressing’ by banks, though an extraordinary infusion of liquidity by the Reserve Bank has mitigated the tightness," he said.
The Reserve Bank will propose measures to reduce such practices, he added.
Bank of Baroda Executive Director, Rajan Dhawan, said the RBI will wait for additional data before deciding on the next policy.
State Bank of India (SBI) Managing Director, P Pradeep Kumar, said the RBI's next policy would be data driven. The second bimonthly monetary policy statement is scheduled to be announced on June 3.

RBI chief says current policy rate appropriately set

The Reserve Bank of India should not be in the business of bailing out banks by infusing cash to make up for year-end distortions and the current policy rate has been appropriately set, the central bank chief said post the policy review on Tuesday.

"If we actually had second thoughts about the rate, we would have moved the rate. We believe the rate is appropriately set right now given our anticipation of events for the next few months,"Rajan told reporters at the post policy press briefing.
If inflation continues along the glide path of reaching 8 percent by January 2015 and 6 percent by the year after, the Governor promised there won't be any rate hikes.
On liquidity moves, Rajan said the primary objective is to improve transmission of policy impulses across the interest spectrum and improve liquidity in the system.

"The term repo has evolved as a useful indicator of underlying liquidity conditions. It also allows market participants to hold liquidity for a longer period...evolving market-based benchmarks for pricing various financial products," he said.
On inflation, the RBI Governor said he sees retail inflation softening to under six percent in 2014.

"Excluding food and fuel...retail inflation remained sticky around 8 percent. This suggests that some demand pressures are still at play," he said.

India Inc disappointed over RBI decision

Chandrajit Banerjee, CII Director General: At a time when growth impulses remain weak and WPI inflation has been on the declining trajectory, the RBI should have taken this opportunity to announce a cut in policy rates, which would stimulate demand and kick-start the investment cycle.

Sidharth Birla, Ficci President:
Tweaking policy rates downwards would help lift business sentiments. We feel relying primarily on monetary policy for inflation management may not be a comprehensive approach. There are administrative fixes and fiscal measures that need to be adopted.

Rana Kapoor, Assocham President: The RBI had the opportunity to give growth a chance to reinvigorate by reducing the policy interest rates and reviving the investor sentiment.

Sharad Jaipuria, President of the PHD Chamber: The RBI status quo on policy rates is disappointing as the industrial growth is severely impacted by high cost of funds and other structural rigidities in the economic system like poor infrastructure and high transaction costs.

Anupam Shah, EEPC India Chairman: The exporting community was looking towards the RBI to reduce the policy interest rates. Thus, we are disappointed.


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