No surprises...RBI keeps key policy rates unchanged

The Reserve bank of India (RBI) in its mid-quarter review of monetary policy kept policy rates unchanged on Tuesday. RBI has been decided to keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.25% of their net demand and time liabilities; and keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8.0 per cent. Consequently, the reverse repo rate under the LAF will remain unchanged at 7.0 per cent, and the marginal standing facility (MSF) and the Bank Rate at 9.0 per cent. In its second quarter (July-September) policy review, RBI noted that Headline WPI inflation edged down to 7.2% in November, mainly owing to softening of prices of vegetables, minerals and fuel. On the other hand, prices of cereals and protein-based items such as eggs, fish and meat firmed up further. Significantly, core (non-food manufactured products) inflation eased, aided by decline in prices of metals, cement and chemicals. On domestic growth front, RBI observed some "indications of a modest firming up of activity in October-December quarter. GDP growth in Q2 of 2012-13 at 5.3% was marginally lower than 5.5% in Q1. The recent policy initiatives by the Government and further reforms should help to boost business sentiment and improve the investment climate. As regards inflation, excess capacity in some sectors is working towards moderating core inflation. Furthermore, the easing of international commodity prices, particularly of crude, is expected to impart some softening bias to the evolving inflation conditions if it is not offset by the impact of rupee depreciation. The Reserve Bank is closely monitoring the evolving growth-inflation dynamic and will update the formal numerical assessment of its growth and inflation projections for 2012-13 as part of the third quarter review in January 2013. The Reserve Bank is closely monitoring the evolving growth-inflation dynamic and will update the formal numerical assessment of its growth and inflation projections for 2012-13 as part of the third quarter review in January 2013