|10-02-2014, 04:14 PM||#1|
Reserve Bank of India holds ground against high inflation
The Reserve Bank of India sent a strong message on Tuesday that it will keep interest rates unchanged until it is sure consumer inflation can be reduced to a January 2016 target of 6%.
The policy review statement by the Reserve Bank of India on September 30 reiterated Governor Raghuram Rajan’s pledge to contain inflation.
India has been struggling for long with prices increasing ad double digits on an annual basis, which is causing calamity among India’s poor.
The RBI maintained its key policy repo rate at 8.0%, and also kept its main liquidity levers, the statutory liquidity ratio (SLR) and the cash reserve ratio (CRR) unchanged.
“This continues to warrant policy preparedness to contain pressures if the risks materialize,” the RBI statement said. “Therefore, the future policy stance will be influenced by the Reserve Bank’s projections of inflation relative to the medium term objective (6 per cent by January 2016), while being contingent on incoming data.”
Inflation slowed to 7.8% in August, assuring that the RBI’s near-term target of 8% inflation in January will be achieved.
The RBI expects inflation to slow to 6% by November, but after rising to around 8% in the first quarter of 2015 as a base effect that is likely to reverse.
India’s bond investors rejoiced at the priority of the RBI to tame inflation. Yields on the 10-Year government bond declined 3.3 basis points on Wednesday.
Meanwhile, India’s stock market seem to have not been affected by high interest rates, as it continues to be buoyed by a positive sentiment by the election of Prime Minister Narendra Modi in May.
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