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RBI keeps key rate unchanged, inflation remains a concern

Raghuram Rajan

With poor monsoon and food inflation continuing to remain a worry, the Reserve Bank today kept key policy rate unchanged

Raghuram RajanMumbai: With poor monsoon and food inflation continuing to remain a worry, the Reserve Bank today kept key policy rate unchanged, giving no respite either to borrowers or India Inc.

RBI Governor Raghuram Rajan, however, lowered the Statutory Liquidity Ratio, the portion of deposits that banks are required to keep in government bonds, by 0.5 per cent to unlock about Rs 40,000 crore into the system.

Bankers said the RBI action does not provide room to cut interest rate and hence the EMIs for home and auto loans will remain the same. Industry chambers voiced disappointment saying that RBI should have cut the rate to boost industrial growth.

Rajan, who has for the third time in a row kept the rate unchanged, said there are upside risks to inflation in view of uncertain monsoon and its impact on food production as also volatile international oil prices.

“It is…appropriate to continue maintaining a vigilant monetary policy stance as in June, while leaving the policy rate unchanged,” he said at the third bi-monthly review of the monetary policy here.

Accordingly, the repo rate will continue to stand at 8 per cent, the reverse repo at 7 per cent and the cash reserve ratio at 4 per cent. The bank rate would remain at 9 per cent.

In order to infuse additional liquidity, Rajan decreased SLR for banks by 0.50 per cent to 22 per cent with effect from the fortnight beginning August 9. A similar move in June had released an additional Rs 40,000 crore into the system.

Rajan hinted at more SLR cuts in the future in tandem with the government actions on the fiscal deficit front to help lenders plan for the long-term.

Commenting on RBI action, Oriental Bank of Commerce Chairman and Managing Director S L Bansal said “interest rates are unlikely to come down in the near future. The status quo would continue for some time.”

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