The RBI maintained the policy rate in its policy statement today, as it awaits improved transmission of past cuts by banks, additional steps to unclog supply side bottlenecks by the government and resolution of uncertainty related to inflationary pressures and the rate action by the US Federal Reserve. The extent of progress on such factors in the coming two months would critically determine whether the Central Bank reduces the Repo rate in the ensuing policy at the end of September 2015.
With the Indian Meteorological Department retaining its forecast of a 12% monsoon deficiency in 2015, the Central Bank adopted a cautious stance in the August 2015 policy review, despite lowering its inflation projections for Jan-March 2016 by 0.2% on account of mitigating factors such as the sharp fall in crude oil prices, healthy planting of pulses and oilseeds as well as modest rise in minimum support prices. Notwithstanding the healthy sowing trends thus far, effective food management remains vital, including ensuring adequate stocks of imported items to lessen the potency of supply-demand mismatches and dampen inflation expectations.
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