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No change in your EMI on loan for now as RBI keeps key rates on hold

Last Updated: Tuesday, August 5, 2014 - 11:35

Zee Media Bureau

New Delhi: The Reserve Bank of India on Tuesday kept interest rates steady in its bi-monthly monetary policy review due to growing concerns that disappointing monsoon rains will lead to a surge in food prices.

This is the third time in a row that interest rates have been left unchanged amid demands for moderation to spur growth.

The RBI, in its third bi-monthly monetary policy statement, left the short-term lending rate or repo rate and the cash reserve ratio (CRR) unchanged at 8 percent and 4 percent, respectively.

However, as a liquidity inducing-measure, the RBI brought down the Statutory Liquidity Ratio (SLR) — thamount of deposits banks keep in government bonds — by 0.5 percent to 22 percent.

The RBI also cut the ceiling on debt that must be held-to-maturity by half a percentage point to 24 percent.

"With some continuing uncertainty about the path of the monsoon, it would be premature to conclude that future food inflation, and its spill-over to broader inflation, can be discounted," the RBI said in a statement.

Policymakers have taken steps to contain food prices by curbing hoarding of food articles and setting limits on export of onions and potatoes, which are staples in Indian cooking.

Instead, the biggest concern remains below average rainfalls that are believed to be pushing up vegetable and fruit prices by double digits, making the outlook for inflation unpredictable.

Vegetable prices rose 9 percent while fruit prices rose nearly 21 percent year on year in June, when monsoon was 48 percent below average, although rainfall improved in July, the second month of the monsoon season.

Analysts say inflation is likely to accelerate as a result, and then there is the additional risk the Middle East tensions could push crude oil import prices.

In June, the inflation rate was the lowest since government started publishing the figures in January 2012, with the consumer price index showing a 7.31 percent rise from a year earlier.

With agency inputs

First Published: Tuesday, August 5, 2014 - 08:42
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