RBI Monetary Policy Review: Repo rate unchanged at 8%

The Reserve Bank of India (RBI) kept the repo rate unchanged at 8% in the annual monetary policy review for 2014-15 held today at 11 AM. This decision is in line with what we have expected in our previous report (RBI to Maintain Its Status Quo on March 31, 2014). Also the reverse repo rate remained unchanged at 7%. The controlled food inflation, strengthening rupee and increased foreign currency inflow supported the decision to keep the rate unchanged. However, RBI also indicated the adverse monsoon may lead to inflation. RBI in the meeting also indicated for no further changes in rates, if the inflation remained in line with the guidelines.

As the financial year 2014-15 is concerned, RBI expects the GDP picking up to 5-6% backed by the improvement in agricultural and service sector. Though, the subdued demand and slower industrial activity in country is still a concern for the economy. RBI intends to hit the CPI at 8% by January 2015 and further 6% by January 2016. the governor explained earlier measures to continue till CAD comes under level of 2% of GDP.

For the banks in country RBI said, banks need to make a framework for the early detection of their Non-Performing assets effective from today onwards. The RBI governor also mentioned that they will issue the banking licenses quickly after the election commission’s approval as the banking lisence is a regulatory process and not a governmental of political process. The differential banking licenses may follwed by the tap banking licenses. It also intends to provide sufficient liquidity for the banking systems in country. The simplified KYC norms helped FIIs considerably and RBI intends to continue with these in future. On banking front, there will not be charges or penalty for minimum balance maintenance and non-operative bank accounts.