MUMBAI - 03-12-2014: Reserve Bank of India Governor Raghuram Rajan left interest rates unchanged for the fifth time in a row, awaiting firm signals that consumer price inflation will slide convincingly and remain low for a long time. But he gave a strong indication that rate cuts could come early in 2015. \"A change in the monetary policy stance at the current juncture is premature,\" Rajan said in the statement accompanying the announcement. \"However, if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle.\" He also signposted two critical decisions that will be announced soon-- one is on the 5-25 funding structure for infrastructure projects that was announced in the budget, the other is on banks taking equity during debt restructuring. The price at which this can be done is being discussed with the Securities and Exchange Board of India, he said. The Governor\'s decision is on expected lines as nearly every economist said there wouldn\'t be a change in interest rates, barring a few hopefuls after the decision of the Organisation of Petroleum Exporting Countries decision to keep supplies stable pushed down crude oil prices to four-year lows.
\"We are certainly seeing a disinflationary process,\" Rajan said at a press conference after the policy was unveiled. \"We want to get more certainty on the disinflationary process.\" The governor reiterated his oft-stated position that it was important to win the battle on prices rather than ease monetary policy to early only to have them popping up again. \"We want to make sure that this is for real, we don\'t want to flip-flop,\" he said. \"We\'d rather change for good.\" In answer to another question, he said, \"We\'re not trying to manage long-interest rates.\" Rajan said those clamouring for interest rate cuts were being short-sighted. The central bank was not looking at quarter-to-quarter numbers. \"We\'re talking about tears of sustainable growth... that is a message that has to seep through.\" Still, the RBI forecast of consumer inflation has been revised down to 6% in March 2015. The growth projection for 2014-15 has however been retained at 5.5%. Revising his earlier hawkish tone in the previous policy statement when he expressed concerns about upside risks to inflation, the statement said, \"The risks to the January 2016 target of 6% appear evenly balanced under the current policy stance.\"
The RBI has reservations about the evolution of the base effect in inflation, how long ongoing disinflationary impulses last, the pace of change of the public\'s inflationary expectations, as well as the success of the government\'s efforts to hit deficit targets. The repo rate, at which RBI lends to banks, remained at 8%, and so did all the other rates. The cash reserve requirement, the proportion of deposits that banks have to keep with the central bank, remains at 4%. \"RBI would like inflation to be sustainable at lower level before lowering rates,\" said Naresh Takker, MD and CEO of rating company ICRA. \"Also, one should bear in mind that the inflation number may go up next month due to lower agriculture productions and also the benefit of the base effect would reverse soon,\" he added. Governor Rajan has been under pressure from various quarters for a reduction since prices are sliding fast amid uncertain growth indicators. But economists have been of the view that the fall could be temporary, given the base effect and that there are chances of a sharp jump in the CPI reading early next year.