RBI credit policy: Expert views on RBI's mid-quarter policy review

The Reserve Bank of India (RBI) left interest rates unchanged as expected on Thursday, underscoring its concern about inflation following the sudden spike in global oil prices even as economic growth has turned sluggish.

The RBI kept its policy repo rate unchanged at 8.5% at its mid-quarter review, in line with forecasts, one day after data showed February wholesale price index inflation at 6.95%, slightly lower than the RBI's March-end projection of 7%.

COMMENTARY:

INDRANIL PAN, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI

"A status quo policy is what we had expected and that is what it is. The statement clearly highlights the risk to inflation in the form of crude prices, suppressed inflation and the likely rupee depreciation. Clearly the statement also highlights the fiscal deficit being an added source of risk for inflationary pressures."

BACKGROUND:

- India's inflation picked up for the first time in five months to 6.95% in February, although the number remains below the central bank's end-March projection of 7%.

- The RBI cut the cash reserve ratio requirement for banks on March 9, sooner and more sharply than expected to ease tight liquidity.

- Production at factories, mines and utilities in January expanded 6.8% from a year earlier, the highest since June 2011 and from market estimate of 2.1%.

- But growth in Asia's third largest economy fell to 6.1% in the quarter ended December, the weakest pace in almost three years, data released in February showed.

- The RBI remains focused on economic growth even though rising oil prices have emerged as an inflationary risk, Deputy Governor Subir Gokarn said early this month.