#RBI policy rate unchanged on inflation concerns

Mumbai, Dec 1 (PTI) RBI Governor Raghuram Rajan today left the key interest rate unchanged as widely expected in view of rise in retail inflation to 4-month high and likelihood of capital outflows on a possible US Fed rate hike later this month.

The Reserve Bank, which has lowered interest rate by 125 basis points or 1.25 per cent this year, including a larger- than-expected 50 bps cut at the last monetary policy review in late September, left the benchmark lending rate (repo) at 6.75 per cent.

The cash reserve ratio or the amount of deposits banks park with RBI has also been left unchanged at 4 per cent.

“Uptick of CPI inflation excluding food and fuel for two months in succession warrants vigilance,” Rajan said, promising to ease rates as and when room is available.

“We are in accommodative stance,” he said.

The Consumer Price Index or retail inflation accelerated to 5 per cent in October led by a surge in food items such as pulses, matching RBI’s target for March 2017.

Stating that inflation is expected to accelerate till December before plateauing, Rajan said it may follow RBI’s projected path “with risks slightly to the downside”.

The Reserve Bank, he said, “will use the space for further accommodation, when available, while keeping the economy anchored to the projected disinflation path that should take inflation down to 5 per cent by March 2017.”

The RBI Governor said second-quarter GDP growth indicates early signs of recovery but the RBI will stick to its earlier projection of 7.4 per cent economic growth for the current fiscal with a marginal downward bias.

Rajan also expressed anguish at the banks’ reluctance to pass on the benefits of the earlier rate cut actions to the borrowers, saying the median decrease in the base rates over the course of the year has only been 0.60 per cent as against the RBI s 1.25 per cent cut in the repo rate since January.