Rajan keeps key rates unchanged; awaits Budget cues

Repo rate left untouched at 6.75 %

Rajan keeps key rates unchanged; awaits Budget cues

 The Reserve Bank of India decided not to tinker with key rates by leaving it unchanged in the sixth bi-monthly monetary policy for 2015-16.

While the repo rate was left unchanged at 6.75 per cent, the cash reserve ratio was maintained at 4 per cent of net demand and time liability (NDTL).

Interestingly, the governor put the onus on finance minister Arun Jaitley to control spending and inflation through reforms in the Budget so that the central bank can look at more rate cuts going forward.

“The Indian economy is currently being viewed as a beacon of stability because of the steady disinflation, a modest current account deficit and commitment to fiscal rectitude. This needs to be maintained so that the foundations of stable and sustainable growth are strengthened. The Reserve Bank continues to be accommodative even as it leaves the policy rate unchanged in this review, while awaiting further data on the development of inflation,” RBI governor Raghuram Rajan said.

Support growth

Structural reforms in the forthcoming Union Budget that boost growth while controlling spending will create more space for monetary policy to support growth, while also ensuring that inflation remains on the projected path of 5 per cent by the end of 2016-17, Rajan added.

Most of the economists as well as market experts had expected a status quo from Raghuram Rajan with rate cuts likely only after the Budget.

RBI, in its statement, forecast inflation to be around 5 per cent by end of fiscal 2016-17. However, it did clarify that the implementation of the seventh Central Pay Commission has not been factored into the projections.

“Going forward, under the assumption of a normal monsoon and the current level of international crude oil prices and exchange rates, inflation is expected to be inertial and be around 5 per cent by the end of fiscal 2016-17,” RBI said.

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