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RBI talks growth but holds interest rates

HT Correspondent, Hindustan Times  Mumbai, October 30, 2012
First Published: 09:10 IST(30/10/2012) | Last Updated: 02:10 IST(31/10/2012)

Reserve Bank of India governor Duvvuri Subbarao left nothing to chance on Tuesday as kept the benchmark policy repo rate unchanged at 8%, but released more cash into the economy to sustain growth - on which he toed a conservative line that seemed to have irked the finance ministry.


However, he lowered the Cash Reserve Ratio (CRR) - the share of deposits that banks much park with the central bank - by 0.25 percentage points to 4.25% in order to release Rs. 17,500 crore more for banks to lend for growth.

Subbarao said his intent was to keep "liquidity comfortable to support growth" but on the deeper question of interest rates, indicated that it was only after an easing of inflation in early 2013 that it could be expected.

With the recent fuel price hikes yet to be transmitted across the economy, the RBI expects inflation to rise somewhat in the October-December period, before easing in the January-March quarter.

"The baseline scenario suggests a reasonable likelihood of further policy easing in the fourth quarter of 2012-13," said Subbarao, as RBI revised its inflation projection for the end of 2012-13 to 7.5% from 7 %. It is currently at 7.8%.

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