RBI keeps interest rates unchanged

RBI keeps interest rates unchanged

By: || Updated: 01 Jan 1970 12:00 AM
Mumbai: Reserve Bank Governor Raghuram Rajan today left all key rates unchanged citing continued risks to inflation and difficult external situation especially on the geopolitical front.


This is the fourth consecutive time that the RBI has kept key interest rates unaltered despite clamours from the industry to cut rates to boost economy.


The short-term lending rate (repo) rate remained at 8 per cent, and the cash reserve requirement of banks at 4 per cent. The statutory liquidity ratio (SLR) has also been retained at 22 per cent.


Explaining the rationale for status quo policy, Rajan said though WPI inflation has ebbed to levels consistent with 8 per cent inflation by January 2015, "there are risks from food price shocks as the full effects of the monsoon's passage unfold, and from geo-political developments that could materialise rapidly."


He said that there are "uncertainties" over food inflation even though 6 per cent retail inflation target by January 2016 remains a possibility.


"The future policy stance will be influenced by the RBI's projections of inflation relative to the medium term objective of 6 percent by January 2016, while being contingent on incoming data," Rajan said.


The RBI also retained the growth projection for the current fiscal at 5.5 per cent. The apex bank sees FY16 growth at 6.3 per cent.


Stock markets remained flat with BSE Sensex at 26,626 points.


The WPI inflation dipped to a 5-year low of 3.74 per cent in August, while the retail inflation stood at 7.8 per cent.


Rajan said, "the balance of risks is still to the upside, though somewhat lower than in the last policy statement. This continues to warrant policy preparedness to contain pressures if the risks materialise".


He said the fall in crude prices and relative stability in the foreign exchange contains some of the upside risks to inflation.


On growth, Rajan said second and third quarter growth will lower than the first quarter, but the fourth quarter looks more promising.


The Governor also said the final guidelines on small banks and payments banks will be issued by end-November, while the final norms with regard to the changes in the regulatory framework for NBFCs will be introduced by end-October.


Rajan reduced the liquidity provided under the export credit refinance (ECR) facility from 32 per cent of eligible export credit outstanding to 15 per cent with effect from October 10.


RBI, however, continued to provide liquidity under overnight repo at 0.25 per cent at the LAF repo rate and liquidity under 7-day and 14-day term repos of up to 0.75 per cent through auctions.


For BUSINESS News Follow us on Facebook, Twitter, Google+ and for news updates download our News App.

First Published:
Next Story South Asia's first ever coworking & coplay space launched in Gurugram