Reserve Bank of India Governor Raghuram Rajan surprised markets in his maiden policy review on Friday by raising interest rates to ward off rising inflation while scaling back some emergency measures put in place to support the rupee.
Following are highlights from the monetary policy statement:
Lowers marginal standing facility rate by 75 bps to 9.50 pct
Raises repo rate by 25 bps to 7.50 percent.
Reverse repo rises to 6.50 percent.
Cash reserve ratio unchanged at 4.00 percent
Partially relaxes minimum daily cash balance requirement to 95 percent of deposits from 99 percent.
Bringing down inflation to more tolerable levels warrants raising the repo rate by 25 basis points immediately
To contemplate easing cash tightening measures in a calibrated manner
Policy steps to mitigate exchange market pressures, create a conducive environment for revitalisation of sustainable growth
Steps intended to address inflationary pressures so as to provide a stable nominal anchor for the economy
Timing, direction of further actions on exceptional measures will be contingent upon exchange market stability, and can be two-way
Further actions need not be announced only on policy dates
Focus now on internal determinants of rupee, fiscal deficit and domestic inflation, after steps taken to contain current account gap
Growth is trailing below potential and the output gap is widening
Growth could pick up in the second half of the year
Despite good monsoons leading to some moderation in CPI inflation, no room for complacency
In the absence of an appropriate policy response, WPI inflation will be higher than initially projected over the rest of the year
Further change in the minimum daily maintenance of the CRR not contemplated
Objective to normalise conduct and operations of monetary policy so as to allow the repo rate to resume its role as operational policy rate