RBI Keeps Repo Rate Unchanged; SLR Slashed By 50 BP

As expected, the Reserve Bank of India (RBI) kept key rates unchanged. While the repo rate was maintained at 8% and reverse repo rate at 7%, the statutory liquidity ratio (SLR) was slashed by 50 basis points.

The cash reserve ratio was also kept unchanged at 4%.

"At this juncture, it is appropriate to leave the policy rate unchanged and to allow the disinflationary effects of rate increases undertaken during September 2013-January 2014 to mitigate inflationary pressures in the economy," said RBI governor Raghuram Rajan.

"Lead indicators point to continuing sluggishness in domestic economic activity in the first quarter of 2014-15. The outlook for agriculture is clouded by the meteorological department's forecasts of a delay in the onset of the south-west monsoon with a 60% chance of the occurrence of El Nino," the RBI said.

"CPI inflation excluding food and fuel has moderated gradually since September 2013 although it is still elevated," the RBI emphasised.

"The risks to the central forecast of 8% CPI inflation by January 2015 remain broadly balanced. Upside risks in the form of a sub-normal/delayed monsoon on account of possible El Nino effects, geo-political tensions and their impact on fuel prices, and uncertainties surrounding the setting of administered prices appear at this stage to be balanced by the possibility of stronger government action on food supply and better fiscal consolidation, as well as the pass through of recent exchange rate appreciation.