Reserve Bank of India (RBI) has left its Repo Rate unchanged at 7.25% in its first quarter review of monetary policy for FY 14. Cash Reserve Ratio (CRR) is also not changed by the bank and is same as the market had expected.
Repo Rate is a rate at which any bank borrows funds from RBI in order to meet the gap between the demands for money from their customers and actual money they have with them to lend. It depends on RBI to make it expensive or cheaper for the banks to borrow money and accordingly it increases and decreases the Repo Rate.
Economic recovery becomes even tougher with the low business confidence and rising global interest rates, resulting to which the financial market might be pulled down to loss.
Reserve bank’s policies such as increasing the interest rates and liquidity tightening to strengthen the rupee value against USD will come to an end if government does not take steps to reduce the external trade jaggedness. These policies incorporated by RBI for controlling exchange rate’s instability give some relaxation. Meanwhile it is equally important to build up trust and confidence in the foreign and local investors to achieve improvement in the economic structure.
“It is widely anticipated that the central bank would maintain status quo on the policy front. RBI must take into consideration the slowdown in growth especially of industrial sector. We need to pay heed to the fact that industrial growth has taken a severe hit. The recently released IIP data indicated a negative 1.6% growth for May 2013, which is very disappointing,” said Naina Lal Kidwai, President of Federation of Indian Chambers of Commerce and Industry (FICCI).