RBI keeps repo rate unchanged at 6.5%
The Dollar Business Bureau
In line with the industries’ earlier projections, the Reserve Bank of India (RBI) has kept the key interest rates unchanged, leaving the repo rate, also referred as repurchase rate, at 6.5% and the cash reserve ratio (CRR) of scheduled banks at 4.0%.
The Indian banking body, in its second bi-monthly Monetary Policy Statement for the financial year 2016-17, said the decision to maintain the status quo on key rates was taken against the backdrop of current and evolving macroeconomic situation.
“Consequently, the reverse repo rate under the LAF will remain unchanged at 6.0%, and the marginal standing facility (MSF) rate and the Bank Rate at 7.0%,” RBI said in its announcement.
RBI further said a slight increase in inflation, which rose to 5.39% in April due to higher food prices, makes the future trajectory of inflation more uncertain.
However, expectations of a normal monsoon, reasonable spatial and temporal distribution of rainfall, several supply management measures along with the launch of the electronic national agriculture market (e-NAM) trading portal, are expected to moderate unanticipated flares of food inflation.
The banking body also said firming international crude oil prices and the implementation of the 7th Central Pay Commission also factor as potential risk to inflation.
In its first bi-monthly Monetary Policy Statement in April, the RBI had cut the repo rate by 25 basis points to 6.50% from 6.75% and the minimum daily maintenance of the cash reserve ratio (CRR) by 5 percentage points to 90% from 95%. It had left the CRR unchanged at 4%.
Earlier this week, market experts had predicted a status quo, underscoring that the Indian banking body will wait for the monsoon and its subsequent impact on the country’s economy, before deciding on a further rate cut.
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