The Reserve Bank of India kept its key policy rates unchanged at its mid-quarter monetary policy review on December 18, 2013. The RBI decided to keep the repo rate at 7.75% and cash reserve ratio for banks at 4% despite recent increases in consumer and wholesale inflation. The RBI felt it prudent to wait for more economic data before taking any reactive policy actions given the long lag between monetary actions and their impact. The stable interest rates should benefit the financial and infrastructure sectors in the long run, but the RBI may tighten policy if upcoming data does not show improvement in growth and inflation.

1. RBI MID-QUARTER MONETARY POLICY REVIEW
18th December 2013
SWASTIKA INTELLIGENCE GROUP
POLICY DECISION
The Reserve Bank of India, in its mid quarter monetary policy has decided to:
Keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 7.75 per cent
Keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time
liability (NDTL).
Thus, the reverse repo rate under the LAF will remain unchanged at 6.75 per cent, and the marginal standing facility
(MSF) rate and the Bank Rate at 8.75 per cent.
RATIONALE
1. As per recent data releases, Consumer price inflation (CPI) came in at 11.24 percent as against 10.17 percent in
October and the Wholesale price inflation (WPI) stood at 7.52 percent as against 7 percent in October but CPI and
WPI excluding food and fuel have been stable, despite a steady and necessary increase in administered prices, the
RBI has decided to wait before determining the direction of the monetary policy, as there are indications that
vegetable prices may be turning down sharply.
2. Another factor that the RBI has considered to keep the interest rates unchanged is that the disinflationary impact
of recent exchange rate stability should play out into the prices and help in stabilizing near term future inflation.
3. RBI also believes that the negative output gap, including the recent observed slowdown in services growth, as well
as the lagged effects of effective monetary tightening since July, should help contain inflation.
4. Due to the uncertainty in future short term inflation rates, weak state of the economy, the RBI feels that it is
beneficial to wait for more data releases before an overly reactive policy action given the long lag with which
monetary policy works.
CONCLUSION
According to the above review, it is evident that unchanged interest rates should have a positive impact on the
financial markets and rate sensitive sectors like banking and infrastructure in the long run. However, RBI has made
clear that if the forthcoming economic and inflation data and indicators do not improve, then the RBI will take
appropriate measures to curb inflation and may also act on off-policy dates and make sure that the environment is
conducive to stable growth.
Designation
E-mail ID
Sonakshi Bahety
Report Prepared by
Research Associate
sonakshi.bahety@swastika.co.in
RESEARCH TEAM
Santosh Sahu
Santosh Meena
Amit Khare
Vishnu Shreekar
Saloni Gupta
SWASTIKA INTELLIGENCE GROUP
Research Head
Derivatives & Technical Analyst
Commodity Analyst
Commodity Analyst
Research Associate
research@swastika.co.in
santosh.sahu@swastika.co.in
santosh.meena@swastika.co.in
amit.khare@swastika.co.in
vishnu.shreekar@swastika.co.in
salony.gupta@swastika.co.in
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