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RBI keeps key rates unchanged
07 Jun '16
2 min read
The Reserve Bank of India has kept the interest rates unchanged at its policy review. The repo rate stands at 6.5 per cent, while CRR has been retained at 4 per cent and reverse repo stays at 6 per cent. The decision has been on expected lines.
The bank also said that April's inflation reading makes the future trajectory of interest rates “somewhat more” uncertain. Rising crude prices and the implementation of the Seventh Pay Commission pose an upside risk to inflation, it added.
The retail inflation rose to 5.39 per cent in April on higher food prices, reversing a downward trend seen in recent months. It was above RBI's near-term target of 5 per cent by March 2017.
“The expectations of a normal monsoon and a reasonable spatial and temporal distribution of rainfall, along with various supply management measures and the introduction of the electronic national agriculture market (e-NAM) trading portal, should moderate unanticipated flares of food inflation,” the bank said.
The RBI also retained the growth projection of 7.6 per cent for 2016-17 citing corporate profits and a surge in consumption. It said it will also soon review the implementation of marginal cost lending rate framework by banks.
Ahead of the RBI's announcement, many economists said RBI governor Raghuram Rajan could cut the repo rate by 25 basis points between July and September if the monsoon forecasts turns out correct.
They said that if another cut does happen it will possibly be the last reduction in rates in the cycle.
The RBI governor has lowered interest rates by as much as 150 basis points in the past year, to the current 6.5 per cent, which is a five-year low. (SH)
The bank also said that April's inflation reading makes the future trajectory of interest rates “somewhat more” uncertain. Rising crude prices and the implementation of the Seventh Pay Commission pose an upside risk to inflation, it added.
The retail inflation rose to 5.39 per cent in April on higher food prices, reversing a downward trend seen in recent months. It was above RBI's near-term target of 5 per cent by March 2017.
“The expectations of a normal monsoon and a reasonable spatial and temporal distribution of rainfall, along with various supply management measures and the introduction of the electronic national agriculture market (e-NAM) trading portal, should moderate unanticipated flares of food inflation,” the bank said.
The RBI also retained the growth projection of 7.6 per cent for 2016-17 citing corporate profits and a surge in consumption. It said it will also soon review the implementation of marginal cost lending rate framework by banks.
Ahead of the RBI's announcement, many economists said RBI governor Raghuram Rajan could cut the repo rate by 25 basis points between July and September if the monsoon forecasts turns out correct.
They said that if another cut does happen it will possibly be the last reduction in rates in the cycle.
The RBI governor has lowered interest rates by as much as 150 basis points in the past year, to the current 6.5 per cent, which is a five-year low. (SH)
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