RBI policy review on expected lines, key rates left unchanged

The Reserve Bank of India (RBI) has kept the key interest rates unchanged citing elevated food inflation, rupee depreciation and uncertainty over foreign fund inflows.

The repo rate has been retained at 7.25 per cent while the cash reserve ratio (CRR) will continue to be 4 per cent.

"The monetary policy stance has been informed by the evolving growth-inflation dynamics , the balance of risks, as well as recent developments in the external sector," RBI Governor D Subbarao said in the mid-quarter policy review.

The central bank had reduced key policy rate (repo rate) by 0.75 per cent during the last three monetary policy announcements.

Subbarao specifically cited the decision of the US Fed to trim the growth stimuli in a phased manner and articulated concern over risks coming "on account of uncertainty over policies of systemic central banks."

The May 22 announcement has led to fund outflows from emerging markets, including India which is already facing trouble over the high current account deficit (CAD) that touched an alarming 6.7 per cent in the December quarter - and hence, depreciation in the value of rupee.

"To reduce CAD to a sustainable level, the near term challenge is to finance it through stable flows," the statement said.

Rupee has declined by 5.8 per cent since January 1 and touched a record low of 58.96 to a dollar last week. It was trading at 57.84 during the morning trade.

In its guidance, RBI, particularly, flagged risks on inflation, saying "it is only a durable receding of inflation that will open up the space for monetary policy to continue to address risks to growth."

The status quo maintained by RBI dashed the hopes in the market, with the BSE Sensex falling by 83 points to 19,095 soon after the announcement.

With inputs from PTI