<div> </div><div>The Reserve Bank of India (RBI) sent a strong signal on Tuesday that it will refrain from cutting interest rates until it is confident that consumer inflation can be reduced to a target of 6 per cent by January 2016.</div><div> </div><div>The RBI policy review statement reinforced Governor Raghuram Rajan's commitment to tame inflation in a country that has long struggled with prices rising at double digit levels annually, causing most distress for the country's poor.</div><div> </div><div>The RBI kept its key policy repo rate unchanged at 8.0 per cent, as widely expected, and also left its main liquidity levers - the statutory liquidity ratio (SLR) and the cash reserve ratio (CRR) - untouched.</div><div> </div><div>Warning of upside risks to its 2016 inflation target, the RBI said policy moves would hinge on inflation trends.</div><div> </div><div>"This continues to warrant policy preparedness to contain pressures if the risks materialise," the RBI statement said. "Therefore, the future policy stance will be influenced by the Reserve Bank's projections of inflation relative to the medium term objective (6 per cent by January 2016), while being contingent on incoming data."</div><div> </div><div>Consumer price inflation slowed to 7.8 per cent in August, making the RBI far more confident that the near-term target of 8 percent inflation in January would be met.</div><div> </div><div>In a separate report on inflation, the RBI spelled out its concerns for the future, noting elevated inflation expectations among households and an enduring risk of higher food prices because structural issues were taking time to solve.</div><div> </div><div>The central bank projected inflation to ease to 6 per cent by November but soon rise to around 8 per cent by January through March 2015 as a favourable base effect is likely to reverse.</div><div> </div><div>A Reuters poll last week showed most analysts expect the RBI will not cut interest rates until the April-June quarter.</div><div> </div><div>"The key takeaway is that the central bank is now focused on achieving the 6 per cent inflation target rather than the 8 per cent target," said Soumyajit Niyogi, an analyst for SBI DFHI Primary Dealership.</div><div> </div><div><strong>Economy To Grow Faster</strong></div><div>Investors in India's bonds are happy with the priority Rajan gave to breaking the "back of inflation" in a speech last week. And, on Tuesday, the benchmark 10-year paper was down 1 basis point to 8.48 per cent from its previous close.</div><div> </div><div>Filled with hope by the election of Prime Minister Narendra Modi last May, investors in India's booming stock market have been undeterred by the high interest rates.</div><div> </div><div>The new Modi government has backed Rajan, though the RBI's strategy is far less popular with businesses, which want relief from high interest rates, and banks which want to lend more.</div><div> </div><div>The RBI on Tuesday reiterated its economic growth projection at 5.5 per cent for 2014/15 and said it expects the economy to grow 6.3 per cent in 2015/16.</div><div> </div><div>Modi's reformist government will want more priority to be given to boosting economic growth, but it will have to play its part by remedying structural issues that create supply bottlenecks, and by reducing its fiscal deficit.</div><div> </div><div>In the absence of rate cuts, all the RBI has offered so far this year to help growth has been modest measures to make more credit available.</div><div> </div><div>Ultimately, India needs far stronger investment if it is to decisively recover from the sub-five percent growth suffered in the past two years, and grow fast enough to provide jobs for the millions of young people entering the labour market.</div><div> </div><div><strong>Currency Exchange Rate</strong></div><div>The RBI is not focussed on any particular level of exchange rate, but wants to reduce undue volatility, Rajan said.</div><div> </div><div>He added such a policy would mean that the central bank would typically intervene on both sides of the exchange rate.</div><div> </div><div>The rupee has risen in recent months and in the process has maintained its parity with the dollar seen at the beginning of the year, Rajan told reporters in Mumbai.</div><div> </div><div>The rupee has gained 1.89 per cent against the dollar in the month to date and 2.93 per cent in the past six months, as per Thomson Reuters data.</div><div> </div><div><strong>Jan Dhan Yojna</strong></div><div>Softening his stance on the Pradhan Mantri Jan Dhan Yojana, Rajan said he is not worried about the quality of KYC (Know Your Customer) for opening new accounts and welcomed the financial inclusion scheme.</div><div> </div><div>"We welcome the Jan Dhan Yojana, it is part of RBI's plan to get universal access," he told reporters.</div><div> </div><div>"I am not as worried about the quality of KYC for small accounts. In fact, we have essentially allowed for KYC that can be upgraded over time and in fact we have been more liberal on KYC," Rajan added.</div><div> </div><div>The RBI governor had earlier cautioned the banks on the risks involved in just hunting for numbers, asking them not to compromise on core objectives of the programme.</div><div> </div><div>"When we roll out the scheme, we have to make sure it does not go off the track. The target is universality, not just speed and numbers," Rajan had said while addressing bankers a fortnight ago.</div><div> </div><div>However, Rajan said on Tuesday he wanted a proper inclusion of unbanked households into the banking system.</div><div> </div><div>"What I am more concerned about is that we actually achieve proper inclusion by bringing in households that were not reached in past... We are working with the government to try and make this dream a possibility," Rajan said.</div><div> </div><div>Jan Dhan Yojana was launched by Modi in August to bring 7.5 crore more families into the banking network by January 26, 2015.</div><div> </div><div>So far, over 5.1 crore accounts have been opened and Rs 3,600 crore deposited in banks.</div><div> </div><div>(Agencies)</div>
