Monday, 2 September 2013

RBI to postpone mid-quarter review

The mid quarter review of RBI was originally scheduled on 18 September

The Reserve Bank of India (RBI) has decided to postpone its mid-quarter review of monetary policy, top RBI sources told Business Standard.

The mid quarter review of RBI was originally scheduled on 18 September. Now, it will happen a few days after the US Federal Open Market Committee (FOMC) meeting, which is scheduled on 17-18 September, RBI sources added. The mid-quarter review would also be the first policy announcement by Raghuram Rajan who takes over from D Subbarao on September 5.

The FOMC meet is expected to indicate when the US Fed would start tapering its stimulus programme, known as Quantitative Easing 3, which is crucial for the fate of currencies of emerging markets including India. Stabilising the rupee - which has depreciated 21 per cent since May - would be one of the immediate priorities of Rajan.RBI is expected to announce the new date of the policy review a week before the review is to happen.

The US Fed's comments on the timing on tapering of QE have weighed on the rupee and other emerging market currencies. Any indication of an early tapering of the US Fed's asset purchase programme has made investors pulling out from emerging markets, which exerted pressure on these currencies. The rupee - the worst performing Asian currency this financial year so far - is under pressure largely due to worsening external sector, apart from global factors.

The current account deficit (CAD) was at a record high at 4.8 per cent of the GDP in 2012-13, well above the central bank's tolerance level of 2.5 per cent. CAD is above the central bank's comfort zone for the last three years and RBI expects it to stay above 2.5 per cent this financial year as well.

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