Raghuram Rajan announces RBI monetary policy review, keeps CRR, Repo rates unchanged

Reserve Bank of India Governor Raghuram Rajan on Tuesday unveiled the central bank’s  bi-monthly policy review. Maintaining the status quo, Rajan kept repo rates unchanged at 6.5 per cent. Rajan retained the short-term lending rate at 6.5 and the cash reserve requirement of banks at 4 per cent.

“The inflation surprise in the April reading makes the future trajectory of inflation somewhat more uncertain... rising crude prices and implementation of the seventh pay commission awards being the key risks,” Rajan said in the second bimonthly monetary policy for the current fiscal.

Rajan also explained the rationale for keeping the rates unchanged, he said,"Incoming data since the April policy announcement show a sharper-than-anticipated upsurge in inflationary pressures emanating from a number of food items (beyond seasonal effects), as well as a reversal in commodity prices.”

Below are the highlights of the RBI monetary policy review:

• Repo rate unchanged at 6.50 per cent, Reverse Repo at 6%
• Cash reserve ratio or CRR unchanged at 4%
• Monetary policy to remain accommodative
• Pegs growth forecast at 7.6% for the current fiscal
• Inflation target kept unchanged at 5% for January 2017 with upward bias
• Impact of firming crude oil prices, implementation of 7^th Pay Commission recommendations need to be watched
• Interest rate transmission critical for growth revival
• Timely capital infusion in PSU banks to aid credit flow
• Public investment gaining strength, continuing weakness in private investment is a concern.
• To shortly review the implementation of the Marginal Cost Lending Rate framework by banks
• Third bi-monthly monetary policy on August 9