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Indian Central Bank Pauses, Next Rate Cut Of 25 Bps Expected In March 2015

As we expected, the central bank left policy rates unchanged at 7.75%. As there have been no substantial new developments on the disinflationary process or on the fiscal outlook since January 15, the central bank decided to maintain the current interest rate stance.

But RBI freed up liquidity by reducing the statutory liquidity ratio (SLR - the percentage of Net time and demand liabilities that banks should invest in approved securities like government bonds) by 50bps from 22% to 21.5% (with effect from 7th Feb'15).

Expectations on Inflation

The bank thinks that, the upside risks to inflation stem from:

  1. the unlikely possibility of significant fiscal slippage
  2. uncertainty on the spatial and temporal distribution of the monsoon during 2015
  3. low probability but highly influential risks of reversal of international crude prices due to geo-political events
  4. Heightened volatility in global financial markets, including through the exchange rate channel

Looking ahead, RBI believes… Read More …