RBI surprises market, keeps interest rates unchanged

The Reserve Bank on Wednesday kept the Repo rate unchanged at 7.75 percent in its mid-quarter review of monetary policy.

Updated: Dec 19, 2013, 09:30 AM IST

Zee Media Bureau

New Delhi: In a surprise move, the Reserve Bank on Wednesday kept the repo rate- the rate at which the central bank lends money to commercial banks- unchanged at 7.75 percent in its mid-quarter review of monetary policy.

Similarly the reverse repo rate too stays at 6.75 percent, the cash reserve ratio (CRR) at 4 percent and the marginal standing facility (MSF) at 8.75 percent.

The RBI added it would estimate the impact of any decision by the US Federal Reserve to withdraw its monetary stimulus. The US central bank concludes its policy meeting later in the day today.

"In view of the fact that liquidity is ample in the system, we will definitely be looking at the rates and we will try to see if something needs to be done...May be for the bulk (depositors) we might look at doing something," RBI governor Raghuram Rajan said.

Rajan, however, sounded cautious when he said, "The policy decision is a close one. Current inflation is too high. However, given the wide bands of uncertainty surrounding the short-term path of inflation from its high current levels, and given the weak state of the economy...There is merit in waiting for more data to reduce uncertainty."

Commenting on the policy, Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan said: "It is a difficult balancing act...I certainly think that the priority to RBI is price stability and therefore they should keep continuous watch on what is happening to inflation."

Wholesale Price Index inflation in November climbed to a 14-month high of 7.52 percent as prices of food items such as onions and potatoes surged. Consumer price inflation touched a nine-month high of 11.24 percent last month.

Factory output shrank 1.8 percent in October, the first contraction in the Index of Industrial Production (IIP) in four months.

RBI Governor Rajan, who delivered two repo rate hikes of 0.25 percent each in as many policy reviews since he took over on September 4, had earlier mentioned that he considered fighting inflation as the central bank's "key responsibility."