RBI kept key rates CRR unchanged lowers GDP forecast for FY-14 to 5.5

The Reserve Bank of India has kept the key rates and CRR unchanged during its monetary policy review today. The repo rate and reverse repo rate were kept unchanged at 7.25% and 6.25% respectively. During the past one-and-half years, the RBI has cut repo rate by 1.25% to 7.25%. Cash reserve ratio (CRR) and Statutory Liquidity Ratio (SLR) were kept unchanged at 4% and 23% respectively. Marginal Standing Facility rate and bank rate were kept unchanged at 10.25% as well. This is in line with market expectations though India Inc is not happy with the decision taken by the RBI.

RBI also cut the GDP growth forecast for FY14 to 5.5% from earlier forecast of 5.7% which disappointed the stock market today. RBI Governor Subbarao cited various risks that are likely to hamper economic growth and both domestic and global uncertainty were the main reasons to affect economic recovery.

At the same time, RBI called for urgent policy steps from the government to curtail the current account deficit (CAD) to a sustainable level of 2.5% of GDP. High CAD is affecting the domestic currency badly and it may adversely affect inflation numbers as well.