The Reserve Bank of India chose not to tinker with its policy rates by retaining it at 7.25 per cent. The central bank, however, trimmed its inflation projections by 0.2 per cent but also indicated that there is scope for further rate cuts depending on actions by the US Federal Reserve.
“On the basis of an assessment of the current and evolving macroeconomic situation, it has been decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 7.25 per cent; keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4 per cent of net demand and time liability (NDTL); continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 14-day term repos as well as longer term repos of up to 0.75 per cent of NDTL of the banking system through auctions; and continue with daily variable rate repos and reverse repos to smooth liquidity,”RBI Governor Ra-ghuram Rajan announced in his third bi-monthly policy statement for 2015-16.
“Consequently, the reverse repo rate under the LAF will remain unchanged at 6.25 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 8.25 per cent,” he added.
“Significant uncertainty will be resolved in the coming months, including the likely persistence of recent inflationary pressures, the full monsoon outturn, as well as possible Federal Reserve actions. As the Reserve Bank awaits greater transmission of its front-loaded past actions, it will monitor developments for emerging room for more accommodation,” the RBI governor said.
Trims inflation projection
Relative to the projections of the second bi-monthly statement, inflation projections in this bi-monthly statement are elevated by the higher than expected June observation but reduced by prospects of softer crude prices and a near-normal monsoon thus far. This implies that inflation projections for January-March 2016 are lower by about 0.2 per cent, with risks broadly balanced around the target of 6 per cent for January 2016, RBI added.