As expected, the Reserve Bank of India (RBI) kept the repo rate — the rate at which banks borrow from the central bank — unchanged at 7.25% in its quarterly policy review on Tuesday.
As a result, banks are unlikely to cut lending rates. So, your home loan and car EMIs may remain at current levels.
The RBI also cut India’s growth forecast for 2013-14 to 5.5% from 5.7%, and made it abundantly clear that its priority was to contain the volatility in foreign exchange rates that has resulted in the rupee falling more than 13% against the dollar since May.
On Tuesday, the rupee fell Rs 1.06 to close at 60.47, its largest single-day fall in a month, as the RBI refrained from announcing further measures to contain the plunge in its value.
A weak rupee will fan inflation by pushing up prices of goods hit by costlier fuel and imported commodities.
“The policy stance is guided by the need for continuous vigil and preparedness to pro-actively respond to risks to the economy from external developments,” RBI governor Duvvuri Subbarao said. More measures could be coming, he added.
The government’s chief economic adviser Raghuram Rajan said the government will announce more measures to contain the rupee and reduce the current account deficit (CAD) —the gap between dollar inflows and outflows—in the coming weeks.