statesman news service
MUMBAI, 17 JUNE: Calling for a vigilance over global economic uncertainties that may lead to the reversal of capital inflows and add to the current account deficit burden and roil stock market sentiment, the Reserve Bank of India today maintained its cautious credit and monetary policy stance by denying any relaxation in its short-term lending rate ~ or repo rate ~ and cash reserve ratio or CRR (a fixed percentage of banks’ deposits kept with the central bank).
These have been retained at 7.25 per cent and four per cent respectively ruling out immediate relief to a retail borrower who will have to pay the same EMI or equated monthly installment on home, auto or consumer goods loans.
Nor is RBI satisfied with the sharp decline in the wholesale price index (WPI) inflation to 4.7 per cent in May. "The RBI’s monetary policy stance will be determined by how growth and inflation trajectories and balance of payments situation evolve in the months ahead. It is only durable receding inflation that will open up the space for monetary policy to continue to address risks to growth," clarified the RBI Governor Mr D Subbarao. In his view, RBI’s key concern is high food inflation which is not falling in line with non-food and WPI inflation.
Explaining the policy stance, the Governor said: "The stance has been informed by the evolving growth inflation dynamics, the balance of risks as well as recent developments in external sectors. The central bank believes the steps taken by the government to contain yawning current account deficit fall short of its expectations."
The rupee depreciation since May is another factor that prevents the RBI to relax its policy stance. In a candid message to the government the central bank asked for effective steps to revive investment conditions before expecting it to slash interest rate to promote economic  growth.
Mr Subbarao said since his annual credit and monetary policy statement for 2013-14 last month, global economic activity has slowed and “risks remain elevated, most recently on account of uncertainty over policies of systemic central banks… Reports of the US Federal Reserve’s cut in stimuli has worried emerging economies like India that liquidity flow may slowdown.”