Rupee falls below 60/dollar after RBI policy
RBI's comments raised questions about it's resolve in sustaining cash-draining measures that have sent bond yields surging.
Rupee weakened after RBI shied away from stronger measures to boost currency. The central bank said it will roll back its recent cash tightening steps in calibrated manner if the currency stabilises.
RBI's comments raised questions about it's resolve in sustaining cash-draining measures that have sent bond yields surging and threatened to raise borrowing costs across economy.
The RBI in its first quarter review of monetary policy kept both the repo rate and Cash Reserve Ratio (CRR) unchanged. Maintaining a cautious stance, RBI also cut the GDP growth forecast for FY14 to 5.5% from 5.7% earlier.
Describing the external sector as the "biggest threat" to macroeconomic stability, the RBI urged the government to take immediate steps to narrow the current account deficit (CAD), which has hurt the rupee and overall growth.
"The biggest risk to the macroeconomic outlook stems from the external sector," RBI Governor D Subbarao said while unveiling the first quarter review of the monetary policy. The RBI left key policy rates unchanged and cut the GDP growth estimate for this fiscal to 5.5 per cent from 5.7 per cent.
The RBI also cautioned that rupee depreciation will have adverse impact on prices of fuel and manufactured products in the coming months even as it aims to keep inflation at 5 per cent by March end.
Subbarao said an environment of low and stable inflation and well-anchored inflation expectations is necessary to sustain growth in the medium-term.