RBI pol­icy goes on ex­pected lines

No change in key rates; GDP fore­cast trimmed to 5.5 pc

The Political and Business Daily - - FRONT PAGE - PBD BUREAU/PTI MUM­BAI, JULY 30

FACED with a de­clin­ing ru­pee, the Re­serve Bank to­day chose to keep all key in­ter­est rates un­changed, dis­ap­point­ing bankers who said they may have no choice but to hike rates af­ter a month to the detri­ment of re­tail bor­row­ers and in­dus­try.

Low­er­ing the GDP growth pro­jec­tion for the cur­rent fis­cal to 5.5 per cent from 5.7 per cent, RBI said the ex­ter­nal sec­tor is the "big­gest threat" to eco­nomic sta­bil­ity and asked the govern­ment to take ur­gent steps to rein in the high cur­rent ac­count deficit.

Raghu­ram Ra­jan, Chief Eco­nomic Ad­vi­sor in the Fi­nance Min­istry, said the Govern­ment will an­nounce "spe­cific steps" in the next few weeks to bring down the widen­ing CAD, which has put pres­sure on the ru­pee.

The Re­serve Bank of In­dia, in its First Quar­ter Re­view of Mone­tary Pol­icy, also said re­cent liq­uid­ity tight­en­ing steps taken to sup­port the ru­pee will be rolled back in a cal­i­brated man­ner as sta­bil­ity is re­stored to the for­eign ex­change mar­ket, en­abling it to re­vert to the pol­icy of sup­port­ing growth with a con­tin­u­ing vigil on in­fla­tion.

Giv­ing thumbs down to the RBI's pol­icy re­view, the bench­mark S&P BSE Sen­sex slipped by 245 points, or 1.25 per cent, to close at 19,348.34, while the ru­pee traded at 60.3 against the dol­lar, down 1.5 per cent.

On the im­pact of the pol­icy re­view on in­ter­est rates, State Bank of In­dia chair­man Pratip Chaud­huri said, "Loan de­mand is too weak, so there may not be enough de­mand. So we are wait­ing...Th­ese steps are sup­posed to be tem­po­rary and let us be­lieve in that." Asked how long SBI could hold ex­ist­ing in­ter­est rates if the RBI does not re­verse its liq­uid­ity tight­en­ing mea­sures, Chaud­huri said, "2-3 weeks...Af­ter that we will have to take a view (on rates).

In­dia Inc too ex­pressed dis­ap­point­ment over the RBI's de­ci­sion not to cut key pol­icy rates to prop up growth.

Banks may not change in­ter­est rates im­me­di­ately, ac­cord­ing to Axis Bank man­ag­ing di­rec­tor and CEO Shikha Sharma.

"But we re­ally have to watch what hap­pens to rates over the next 6-8 weeks to take a call," she said. Short-term costs have gone up, ICICI Bank CEO Chanda Kochhar said.

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