Citing inflationary concerns, the Reserve Bank of India (RBI) on Tuesday kept the key policy rates unchanged - the benchmark repo rate at 7.25 per cent and the cash reserve ratio (CRR) at 4 per cent remained the same, but it trimmed consumer inflation forecast for January-March 2016 by 0.2 per cent in its third bi-monthly policy review this fiscal, saying that the growth is beginning to look up gradually.
“lower crude prices and better-than-expected monsoon as the reasons for trimming the January-March consumer inflation target,” cited the RBI.
Though India Inc and the Government were equally disappointed on the RBI’s move, the Government is still hopeful that the central bank will cut interest rate next month to boost much-needed investments and growth as the inflation is under control.
“The RBI will take into account the impact of monsoon, likely crop yield and policy action by US Federal Reserve and announce a cut in the key interest rate soon,” said the Finance Ministry sources.
Keeping the Government’s hopes alive, RBI Governor Raghuram Rajan indicated that he could go for another rate cut ahead on the next policy on September 29, depending on the macro-economic data and how monsoon pans out.
After three cuts in seven months, the RBI decided to keep the benchmark lending (repo) rate unchanged at 7.25 per cent as also the cash reserve ratio (CRR) at 4 per cent. “Given that policy action was front-loaded in June, it is prudent to keep the policy rate unchanged at the current juncture while maintaining the accommodative stance of monetary policy,” Rajan said while justifying the status quo policy stance.
He further said that “the economic recovery is still work in progress. The outlook for growth is improving gradually.” He retained the growth projection for the current fiscal at 7.6 per cent.
India Inc, however, described the RBI’s status quo stance as a ‘missed Opportunity’. The Finance Ministry too has reasons to be unhappy as well, as the central bank has not heeded to its advice favouring a cut and that the RBI should not be solely guided by inflation.
As regards the impact of the policy on borrowers -- individuals and corporates-- observers feel much would depend on how the banks react to Rajan’s advice to them for transmitting the earlier cuts.
“While RBI reduced the benchmark policy rate by a total of 75 basis points or 0.75 per cent since January, banks have passed on only 0.3 per cent to borrowers,” Rajan said.
Reacting to the RBI’s policy, FICCI President Jyotsna Suri said, “The decision of central bank to keep the policy rate unchanged is disappointing for the industry.”
Given that the industrial growth still remains volatile and demand conditions have not seen much improvement, there is a need to give policy stimuli to encourage demand and investments, Suri said.