Highlights of RBI’s Third-Quarter Review of Monetary Policy 2013-14

* Repo Rate hiked by 25 bps to 8%
* Reverse Repo Rate adjusts 25 bps higher to 7%
* MSF, Bank Rate adjusts higher to 9%
* CRR left unchanged at 4% of NDTL
* Repo rate hike consistent with Dec policy guidance
* Repo rate hike to set econ on disinflationary path
* Extent, direction of further policy steps to be data dependent
* Don’t see more near-term hikes if disinflation process evolves
* If policy action succeeds, GDP growth may firm up FY15
* Global recovery gaining traction led by US econ
* Recovery uneven, subdued in EU, Japan
* Slowdown in China growth seems to be underway
* Uncertainty continues to surround emerging nations prospects
* Domestic fragilities getting accentuated in emerging nations
* Financial market contagion is clear potential risk
* Some domestic growth momentum loss likely Oct-Dec
* Domestic growth momentum loss despite pick up in rabi sowing
* Industrial activity remains in contractionary mode
* Consumption demand continues to weaken
* Low capital goods output points to stalled investment demand
* Fiscal tightening Oct-Mar may up aggregate demand weakness
* Lead services indicators suggest subdued outlook
* CPI declined significantly but still remains elevated
* Inflation, excluding food and fuel, has also been high
* Demand pressures still imparting upside to overall inflation
* Critical to address risks to inflation outlook resolutely
* Must address risks to stabilise, anchor inflation expectation
* Must address inflation risks while recognising weak economy
* Must address inflation risks despite likely fiscal tightening
* Substantial fiscal tightening likely in Jan-Mar
* Engaged in active management of liquidity to offset pressures
* Need to offset frictional, structural pressures for liquidity
* Need to ensure adequate credit flow to supply side of econ
* FY14 CAD likely to be below 2.5% of GDP vs 4.8% FY13
* Recent steps should help finance CAD comfortably
* FY15 GDP growth may be in range of 5-6%
* Policy reviews to be ordinarily held every 2 mos now onwards
* Next policy to be on Apr 1, 2014
* Headline inflation fell significantly since Dec policy
* Core CPI inflation remained flat, core WPI rose in Dec
* Patel committee aims for below 8% CPI by Jan 2015
* Patel committee aims for below 6% CPI by Jan 2016
* Upside risks to central inflation forecast of 8% remain