RBI holds rates, expects inflation to fall further

The RBI kept the key policy rates unchanged in its monetary policy review on Tuesday.

Unveiling the monetary policy review, the RBI kept the repo rate (8 per cent) , reverse repo rate (7 per cent) and the CRR (4.0 per cent) unchanged.

It expects November inflation to soften further. In the statement,  the bank said risks to Jan 2016 target of 6% inflation is evenly balanced. The bank sees GDP growth seen at 5.5% in 2015-16. The March-end CPI inflation has been revised down to 6% from 8% earlier.

The RBI expects inflation at 6% over the next 12 months.

RBI says success of ongoing govt actions in removing infrastructural constraints will be key to reviving growth.

Addressing a press conference, RBI governor Raghuram Rajan said the government is comfortable with setting 4 per cent inflation target plus/minus 2 per cent beyond 2016.

There is a misconception among corporates that central bank is not concerned about growth, said the RBI governor.

On the interest rates, Rajan said even though rates have come down, banks have not passed it on

The policy states domestic activity weakened in Q2 of 2014-15, and activity is likely to be muted in Q3 also because of a moderate kharif harvest. The deficiency in the north-east monsoon rainfall has constrained the pace of rabi sowing, except in the southern States.

The persisting contraction in the production of both capital goods and consumer goods in Q2 reflected weak aggregate domestic demand. However, more recent readings of core sector activity, automobile sales and purchasing managers' indices suggest improvement in likely activity.

Exports have buffered the slowdown in industrial activity in Q2 but, going forward, require support from partner country growth, the policy said.  

The sixth bi-monthly monetary policy statement is scheduled on Tuesday, February 3, 2015.