RBI keeps rates unchanged, hints at rate cut in January

The Reserve Bank of India on Tuesday kept the key interest rates unchanged but hinted easing of rates in January, saying with decline in inflation, the focus of monetary policy would shift to removing impediments to growth.

"In view of inflation pressures ebbing, monetary policy has to increasingly shift focus and respond to the threats to growth from this point onwards", RBI Governor D Subbarao said in the mid-quarter monetary policy review.

The RBI is slated to announce the third quarter policy review on January 29.

Overlooking demands of the industry and the bankers, the central bank on Tuesday left the short-term lending (repo) rate and the cash reserve ratio (CRR) unchanged at 8 per cent and 4.25 per cent, respectively.

Referring to inflation, the central bank said, while WPI is showing some signs of moderation, retail inflation has continued to remain elevated. "The non-food component of the index also suggested persistent inflationary pressure".

The RBI, however, said it is closely monitoring the evolving growth-inflation dynamics and would update projections for 2012-13 in the third quarter review.

The central bank said the biggest risk to outlook stems from global politico-economic developments which could delay resolute policy action.

Looking forward, it said, "the emerging patterns reinforce the likelihood of steady moderation in inflation going into 2013-14, though inflation may edge higher over the next two months".

The RBI said the overall WPI inflation has been below the central bank's projected level over the past two months. The WPI inflation in November moderated to 7.24 per cent, but retail inflation remain elevated at 9.90 per cent.