RBI (Reserve Bank of India) kept the policy rates unchanged (30-9-2014) citing latent inflation.
The repo rate (rate at which the RBI infuses liquidity into the banking system) remains at 8% and the cash reserve ratio (CRR– amount of funds the banks must maintain with the RBI or central bank in cash, stays at 4%.
RBI governor Raghuram Rajan in his post-policy interaction with the media said that the RBI will fix with the interest rates only when signs of sustainable low inflation were visible for the medium to long term. The RBI’s main target is containing the consumer price index (CPI) inflation at 8% by January 2015, which is possible. However, the next target is bringing the inflation to 6% by January 2016, which could be challenging, and analysts say governor Rajan’s eyes are firmly set on that target.
A rate cut at this point again risks stoking inflation. Rajan, who had said earlier that the RBI doesn’t want to keep fighting inflation every two years, called for breaking the back of inflation, on 25 September, few days before Tuesday’s monetary policy review.
Source – Livemint