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Journalism of Courage
Belying expectations of a softer interest rate regime, RBI on Tuesday kept all key rates unchanged in a bid to maintain financial and price stability.
Maintaining status quo in its stance, RBI, in its third quarter review of credit policy, also kept growth projection unchanged at 8.5 per cent and inflation close to 5 per cent in 2007-08.
A 0.75 per cent cut in interest rates by US Federal authorities had led to renewed speculation that India too could follow suit to avert any possible slowdown in the economy. But, Finance Minister P Chidambaram had clearly shown his preference for containing inflation even if it meant balancing growth.
This is for the first time in the last two years that Reserve Bank has not hiked the key rates indicating that the monetary policy has borne fruits in ensuring price and financial stability.
However, it gave a policy prescription to the government to ‘effectively, demonstrably and convincingly indicate commitment to managing capital flows consistent with macro fundamentals through appropriate and decisive policy action.”
This assumes significance in the wake of volatile global situation with the forecast of recession in US, evident from the recent 0.75 per cent rate cut by the US Federal Reserve.
Adopting a cautious approach, particularly with the possibility of rising inflation in the wake of surging global oil prices, RBI kept the benchmark bank rate unchanged at 6 per cent. This is the rate at which the central bank lends to commercial banks.
RBI also decided to keep key short term rates, repo and reverse repo unchanged at 7.75 and 6 per cent respectively.
