Mumbai, Dec 2 (KNN)  As predicted by the industry, the Reserve Bank of India today announced that it would keep the lending rate or the Repo rate unchanged at eight per cent.

Unveiling the fifth bi-monthly monetary policy statement, 2014-15, RBI Governor, Raghuram Rajan said, “On the basis of an assessment of the current and evolving macroeconomic situation, it has been decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8.0 per cent,” an official release said.

Significantly, the apex bank has kept lending rate unchanged since May 2013, even though retail inflation had dipped to a record low of 5.5 per cent in October.

However, according to reports, the central bank has indicated that it may cut rates early next year as long as inflation eases further.

“A change in the monetary policy stance at the current juncture is premature. However, if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle,” the RBI release said.

Explaining its policy stance and rationale, “Consistent with the balance of risks set out in the fourth bi-monthly monetary policy statement of September, headline inflation has been receding steadily and current readings are below the January 2015 target of 8 per cent as well as the January 2016 target of 6 per cent,” the RBI said, adding, “The key uncertainty is the durability of this upturn.”

The apex bank also said, “Risks from imported inflation appear to be retreating, given the softening of international commodity prices, especially crude, and reasonable stability in the foreign exchange market. Accordingly, the central forecast for CPI inflation is revised down to 6 per cent for March 2015.”

RBI’s immediate objective has been to contain the consumer price index (CPI) inflation at 8 per cent by January 2015, which has been achieved. However, it is keen to bring down inflation to 6 per cent by January 2016. 

Commenting on the policy statement, “Industry was hoping that, given the combination of persistent weak demand and sustained moderation in inflation, the Reserve Bank could have found merit in an accommodative stance on interest rate reduction”, said President, FICCI, Sidharth Birla.

“Although there has been some improvement in core sector activity, manufacturing has been subdued due to weak demand, therefore curbing major improvement in capacity utilizations.

FICCI’s latest manufacturing survey indicates a weak outlook on capacity expansions. Easing of monetary policy and its transmission by banks could be one key element in encouraging capex, besides improving the demand side.  Without new and expanded capacities coming on line in the foreseeable future we could create risks on the supply side, with consequent impact on future inflation.  We continue to hope that RBI may send positive signals even sooner than the next policy review cycle”, added Birla.    

The sixth bi-monthly monetary policy statement is scheduled for February 3, 2015.  (KNN Bureau)