Given the volatile rupee, the Reserve Bank of India (RBI) left interest rates unchanged on Tuesday as per expectations, however saying that it would roll back the recent liquidity tightening steps after the currency market returns to stability so as to support economic growth in the country.
Though the policy repo rate would remain at 7.25 percent, the country's expected growth has been slashed from 5.7 percent to 5.5 percent.
"Based on an assessment of the present, on prospective macroeconomic situations, we have decided to keep the policy repo rate under the Liquidity Adjustment Facility (LAF) as also the Cash Reserve Ration (CRR) unchanged. Accordingly, the repo rate stays at 7.25 percent, the reverse repo rate (will be) at 6.25 percent and the CRR at 4 percent of the net demand and time liabilities (NDTL) of scheduled banks" the RBI Governor D. Subbarao said here today.
Admitting that domestic and global economic instability have lead to a depreciation in the expected growth of the country, the RBI explained that the recent liquidity tightening steps "will be rolled back in a calibrated manner as stability is restored to the foreign exchange market, enabling monetary policy to revert to supporting growth with continuing vigil on inflation."
Subbarao said that the policy stance is guided by the need for continuous vigil and preparedness to pro-actively respond to risks to the economy from external developments, especially those stemming from global financial markets.
Additionally, the RBI assured that it hopes to curb inflation to 5 percent amidst a declining rupee by end March.
