RBI Guv Rajan keeps policy repo rate & CRR unchanged

02 Dec '14

9 min read

The consequent accretion to reserves denominated in US dollars has been moderated by valuation effects resulting from the strength of the US dollar.

Consistent with the balance of risks set out in the fourth bi-monthly monetary policy statement of September, headline inflation has been receding steadily and current readings are below the January 2015 target of 8 per cent as well as the January 2016 target of 6 per cent.

The inflation reading for November – which will become available by mid-December – is expected to show a further softening.

Thereafter, however, the favourable base effect that is driving down headline inflation will likely dissipate and inflation for December the data for which is released in mid-January, may well rise above current levels.

The key uncertainty is the durability of this upturn. The full outcome of the north-east monsoon will determine the intensity of price pressures relating to cereals, oilseeds and pulses, but it is reasonable to expect some firming up of these prices in view of the monsoon’s performance so far and the shortfall estimated for kharif production.

Risks from imported inflation appear to be retreating, given the softening of international commodity prices, especially crude, and reasonable stability in the foreign exchange market.

Accordingly, the central forecast for CPI inflation is revised down to 6 per cent for March 2015. (AR)

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