Highlights of RBI policy review

MUMBAI Tue Dec 18, 2012 4:42pm IST

The Reserve Bank of India (RBI) logo is pictured outside its head office in Mumbai November 2, 2010. REUTERS/Danish Siddiqui/Files

The Reserve Bank of India (RBI) logo is pictured outside its head office in Mumbai November 2, 2010.

Credit: Reuters/Danish Siddiqui/Files

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MUMBAI (Reuters) - The RBI left its key interest rates unchanged as expected on Tuesday but said policy focus was shifting towards growth, reiterating its October guidance of further easing in the first quarter of 2013 as inflation was seen cooling.

Following are highlights from the monetary policy statement:

POLICY MEASURES

* Keeps repo rate unchanged at 8 percent.

* Reverse repo stays at 7 percent.

* Cash reserve ratio stays at 4.25 percent.

RBI DEPUTY GOVERNOR SUBIR GOKARN COMMENTS:

* Our guidance in October was based on the projection that suggested the (inflation) numbers will go up a bit in Q3 (Oct-Dec) and start to subside in the later half of Q4 (Jan-March) and onwards.

* The two numbers that we have had since the October review have actually come below our projection. In that sense we are seeing at least that the trajectory is moving favourably, at least the bump is not happening.

* Currently the high LAF (liquidity adjustment facility) borrowing was largely a buildup of government cash balances following the advance tax collections and based on that we felt that a permanent measure like CRR reduction was not warranted to address the liquidity pressure. We have done two OMOs in the last two weeks and if we feel the need to do any more we will continue with that.

* This (November inflation) was quite a sharp decline and there was, if not a very sharp, quite a significant revision in the September numbers which took that month's final number up to 8 percent and of course the CPI is still hovering around 10 percent. So the same story is not emerging from all the indices.

* We use the WPI as the benchmark, we use the WPI to measure core and in that sense we are sticking to and are watching that very closely in terms of the trajectory. But we need to keep in mind that there are some risks in the environment which we have referred to in our guidance.

* It (CPI) is a part of our dashboard and the fact that it is high is a matter of concern but is only a part of the dashboard.

POLICY STANCE

* Monetary policy has to increasingly shift focus and respond to threats to growth from this point onwards.

* Recent inflation pattern reinforces October guidance for policy easing in Jan-March.

* Liquidity conditions will be managed to support growth.

* Even as policy emphasis shifts towards growth, it will remain sensitive to inflation risks.

INFLATION STANCE

* Emerging patterns reinforce the likelihood of steady moderation in inflation going into 2013/14.

* Inflation may edge higher over next two months.

* Though consumer price inflation remains stubborn, the pace of moderation in wholesale price inflation has been faster than anticipated.

* Excess capacity in some sectors is working towards moderating core inflation.

* Headline inflation has been below RBI projections for past two months.

* Decline in core inflation has been comforting.

* Elevated food and commodity prices remain contingent risks, especially for emerging and developing economies facing domestic supply constraints.

GROWTH, ECONOMY

* GDP growth is evolving along the baseline projection of 5.8 percent for 2012/13.

* There are some incipient signs of pick-up though growth remains significantly below its recent trend.

* Recent government policy initiatives, further reforms should help improve investment climate.

* Biggest risk to the global outlook stems from political economy considerations that could impede, delay or erode resolute policy action.

* Some indications of a modest firming up of activity in Q3 (October-December).

* Rabi (winter) sowing coverage is expanding steadily, improving the prospects of agricultural growth.

(Reporting by Swati Bhat)

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