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RBI likely to hold key rates: CMIE

business Updated: Jan 17, 2010 11:25 IST

PTI
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The Reserve Bank could retain the key rates in its forthcoming monetary policy even as inflation has breached the seven-per cent mark in December, much above the central bank's projections, says the economic think-tank CMIE.

"Don't expect much of a change in the key interest rates in the RBI policy...Inflation is due to supply side issues, especially of food items, which have small weight in the WPI," Centre for Monitoring Indian Economy (CMIE) chairman SA Dave told PTI in Panjim on Sunday.

The CMIE chairman also noted that there is no problem of excess liquidity in the system to warrant an immediate RBI action on the rates front.

Since the fall of the American financial major Lehman Brothers in September 2008, the RBI had cut the repo rate (the rate at which RBI lends to banks) by 425 basis points, and the reverse repo rate (the rate at which central bank borrows from banks) by 275 basis points, to prop the economy up.

The cash reserve ratio (CRR or the money that banks have to park with the apex lender) was also slashed by 400 basis points to ensure enough money supply into the system.

Earlier this month, Chief Economic Advisor Kaushik Basu had said that there was no reason for the Reserve Bank to tighten money supply in its policy review slated for January 29, as food inflation was driven by supply side constraints.

The WPI-based inflation rose to 7.31 per cent in December from 4.78 per cent in November, mainly due to high food inflation, which touched 17.32 per cent on January 2.