Monetary Policy: RBI's front loaded action

On December 1, the Reserve Bank of India (RBI) kept benchmark interest rates unchanged in its final monetary policy review of 2015.  The review has marked a quiet end to a very busy year for domestic monetary policy, even though it may not be the close of the current monetary easing cycle.

The rate cuts began early in the year with the first surprise off-cycle rate cut on 15 January. The rate cut came after it became clear that inflation was running well below the central bank’s glide path which intended to bring down inflation to 6 percent by January 2016.

A second rate cut followed in March and a third in June. By the summer, rates had been eased by 75 basis points (0.75 percent) in three equal doses. (One basis point is one-hundredth of a percentage point.)

Slow urban consumption demand together with continued softness in inflation and sluggish pace of investment, led the RBI to take a leap of faith in September when it announced a 0.50 percent rate cut.