Weighed down by a weak rupee, the Reserve Bank chose to keep all key interest rates unchanged and asked the government to take urgent steps to reign in the high current account deficit.
Lowering the GDP growth projection for the current fiscal to 5.5 per cent from 5.7 per cent, the central bank said the external sector is the “biggest threat” to economic stability.
Accordingly, the repo rate or the rate at which RBI lends to the system, has been retained at 7.25 per cent and the Cash Reserve Ratio (CRR) of scheduled banks has been kept unchanged at 4 per cent.
It also said that the recent liquidity tightening measures, taken to support the Rupee, will be rolled back in a calibrated manner as stability is restored to the foreign exchange market, enabling it to revert to the policy of supporting growth with continuing vigil on inflation.
The RBI will endeavour to keep inflation, which is under threat from a depreciating rupee, at 5 per cent by March 2014.