Ignoring pleas from industry, the Reserve Bank of India (RBI) kept all key policy rates and reserve ratios unchanged in a review Tuesday but said its focus now shifts towards spurring growth that has taken a hit in recent months.
"In view of inflation pressures ebbing, monetary policy has to increasingly shift focus and respond to the threats to growth from this point onward," the country's central bank said in a statement on its mid-quarter review of the monetary policy.
"Overall, recent inflation patterns and projections provide a basis for reinforcing our October guidance about policy easing in the fourth quarter. However, risks to inflation remain and accordingly, even as the policy emphasis shifts towards growth, the policy stance will remain sensitive to these risks," it said.
Accordingly, the bank rate remains unchanged at 9 percent, the repurchase (repo) rate at 8 percent, reverse repo rate at 7 percent, the cash reserve ratio at 4.25 percent and statutory liquidity ratio at 23 percent.
In the second quarter review of monetary policy Oct 30, the RBI had lowered the CRR by 0.25 percent, but had kept unchanged the repo and reverse repo rates, which determine lending and borrowing rates by commercial banks.
As per latest data released last week, the annual rate of inflation based on wholesale price index declined to a 10-month low of 7.24 percent in November against 7.45 percent in the previous month, according to the government data released last week.
However, wholesale price-based food inflation increased to 8.50 percent in November this year from 8.32 percent recorded in the corresponding month of previous year.
This was largely due to an exponential rise in the prices of cereals, rice, wheat and pulses, according to data released by the ministry of commerce and industry.
"The new combined (rural and urban) CPI (consumer price index) inflation increased in November, reflecting sustained food inflation pressures, particularly in respect of vegetables, cereals, pulses, oils and fats," the bank said.
Meanwhile, the growth in the country's gross domestic product in the second quarter of this fiscal at 5.3 percent was marginally lower than the 5.5 percent logged during the first quarter -- which has been a matter of concern for all stakeholders.
But the Reserve Bank relented in giving in to demands for a rate cut citing inflation as a key reason. However, in its future guidance the RBI said there is a possibility of policy easing in the fourth quarter, if the core inflation continues to decline.
"In view of inflation pressures ebbing, monetary policy has to increasingly shift focus and respond to the threats to growth from this point onwards. Liquidity conditions will be managed with a view to supporting growth as stated in the SQR (second quarter review), thereby preparing the ground for further shifting the policy stance to support growth," it said.