RBI Governor Raghuram Rajan today kept the key policy rate unchanged 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 Reserve Bank lends to the system will continue at 6.75 per cent. The cash reserve ratio (CRR) or the amount of deposits banks park with RBI has also been unchanged at 4 per cent. The status quo was widely expected.
RBI, which is set to achieve its target of getting inflation down at 6 per cent by January and is aiming to reduce the number further to 5 per cent by March 2017, will monitor developments on the commodity prices, including food and oil and external developments in its future policy formulations, Mr. Rajan said.
In his fifth bi-monthly policy review of this fiscal, he said: “Inflation is expected to broadly follow the path set out in the September review with risks slightly on the downside. The RBI will use the space for further accommodation, when available, while keeping the economy anchored to the projected disinflation path that should take inflation down to 5 per cent by March 2017.”
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 per cent 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 per cent as against the RBI’s 1.25 per cent cut in the repo rate since January.
