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Limited headroom for monetary easing: RBI

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The Reserve Bank of India has reduced the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.75% to 7.5% with immediate effect. Consequently, the reverse repo rate under LAF stands adjusted to 6.5% and the marginal standing facility (MSF) rate and the Bank Rate to 8.5% with immediate effect.


An official release issued by the bank said: “Notwithstanding moderation in non-food manufactured products inflation, headline inflation is expected to be range-bound around current levels over 2013-14 in view of sectoral demand-supply imbalances, the on-going corrections in administered prices and their second-round effects. In addition, elevated food prices, including pressures stemming from MSP increases, and the wedge between wholesale and retail inflation have adverse implications for inflation expectations. Risks on account of the current account deficit (CAD) remain significant notwithstanding likely improvement in Q4 over an expected sharp deterioration in Q3 of 2012-13. Accordingly, even as the policy stance emphasises addressing the growth risks, the headroom for further monetary easing remains quite limited.” Read More

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