Reserve Bank of India (RBI) Governor Raghuram Rajan kept the key policy rate unchanged on Tuesday but affirmed the central bank’s commitment to ease it as and when room is available, saying inflation is likely to perform better than expected.
Accordingly, the repo rate at which the RBI lends to the system will continue at 6.75 percent. The cash reserve ratio or the amount of deposits banks park with RBI has also been unchanged at 4 percent. The status quo was widely expected.
The RBI, which is set to achieve its target of getting inflation down at 6 percent by January and is aiming to reduce the number further to 5 percent by March 2017, will monitor developments on the commodity prices, including food and oil and external developments in its future policy formulations, Rajan said.
Though the RBI Governor noted that second-quarter GDP numbers indicate early signs of recovery, he chose to stick to the earlier projection of 7.4 percent for the fiscal with a marginal downward bias.
Rajan also expressed anguish at the banks’ reluctance to pass on the benefits of the earlier rate cut actions to the borrowers, saying the median decrease in the base rates over the course of the year has only been 0.60 percent as against the RBI’s 1.25 percent cut in the repo rate since January.
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