The Reserve Bank of India (RBI), in its monetary policy review on July 31, has kept the repo rate unchanged at 8 per cent. The central bank raised its March 2013 Wholesale Price Index (WPI) inflation forecast to 7 per cent from 6.5 per cent projected in April 2012. Commenting on the RBI policy, CRISIL has said that capex in the private sector would see a slump in FY13.

According to a CRISIL study paper on this topic, titled 'private sector capex to slump in FY13', private corporate sector investments are likely to contract by 35 per cent in 2012-13. The paper further notes that investments in new projects would account to only one fourth of the total investments while around half of the total companies do not invest in new projects. Although the interest rates are higher compared to that of 2009-10, they are not the main hinderance to investments. Policy inaction and delay in clearances are identified as hindrances to new investments, according to the study.

Further, CRISIL points out that RBI is evidently uncomfortable with the high inflation because not only the overall WPI inflation but also the non-food manufacturing inflation at 4.9 per cent in June is above overall WPI inflation threshold of 4.0-4.5 per cent. While growth has slowed down significantly, inflation has remained persistent at around 7.4 percent over the past two quarters. The weak monsoon and the recession in the Euro zone have emerged as risks in the 2012-13 growth forecast. Therefore, RBI's decision to keep policy rates unchanged was a right move given the risks of inflation and limited upside to growth even if interest rates are lowered.