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RBI mid-quarter policy review

RBI mid-quarter policy review

In line with expectations the Reserve Bank of India (RBI) chose to keep key policy rates unchanged (repo rate at 8.5%, cash reserve ratio [CRR] at 4.75%). This is in view of the upside risk on inflation given the high crude oil prices and currency depreciation. In fact the sharp reduction in the CRR in the recent past (125bps since January 25) had lowered the expectation of a rate cut in the current policy review.

 
The RBI also highlighted the deceleration in growth but preferred to wait for credible action on the fiscal deficit front and for a clear downward trend in inflation to emerge for it to ease policy rates. With RBI holding back, the focus shifts to Union Budget now which would have a bearing on RBI’s moves in April. The consensus expectations point towards policy rate cuts of 100 bps over FY2013.