RBI pauses

The Reserve Bank of India Governor Duvvuri Subbarao promised to cut interest rates in the months ahead to revive faltering economic growth when price pressures ease convincingly, but freed rates on non-resident deposits in yet another measure to lift the rupee. The central bank maintained status quo on policy measures, but said it was reversing its policy stance of raising interest rates to tame inflation without indicating a time frame for lowering rates. It will keep buying government bonds, popularly known as open market operations, to ensure adequate liquidity. This assurance of future easing was not enough for investors and companies, but is a giant leap from a monetary perspective especially with key manufacturing inflation still rising. The governor, who has so far stuck to economic text books by raising rates to curb inflation, has once again sent a signal that it takes two to tango — that monetary policy alone cannot lift the economy out of the rubble, the government should also act. For the first time in nearly two years, the governor has committed to reversing the rate increase cycle after going back once on a pause in the third quarter of the last fiscal. Repo rate, the rate at which the RBI lends to banks, is unchanged at 8.5%, after 13 increases. Reverse repo, the rate it pays banks for depositing excess funds, is at 7.5%. The rate on the marginal standing facility, the emergency window to borrow, is at 9.5%. Cash reserve requirement is at 6%.