Raghuram Rajan's last policy review: No respite for home, auto borrowers; RBI keeps rates unchanged

Citing upside risks to the Reserve Bank's inflation target for March 2017, Governor Raghuram Rajan maintained status quo on key rates at his last policy review meeting, as was widely expected.

Zee Media Bureau

New Delhi: Presenting his last RBI monetary policy on Tuesday Reserve Bank Governor Raghuram Rajan kept the key interest rate unchanged as retail inflation continues to be above the comfort zone.

As was widely expected, RBI kept the policy repo rate (rate at which banks borrow from the central bank) under the liquidity adjustment facility (LAF) unchanged at 6.5 percent while the reverse repo rate under the LAF will remain unchanged at 6.0 percent.

Similarly the MSF rate and the Bank Rate will remain at 7.0 percent while the cash reserve ratio (CRR) of scheduled banks will remain unchanged at 4.0 percent.

The government announced last week that it would like the RBI to focus on maintaining retail inflation rate of 4 percent for the next five years, based on which the new interest rate setting panel would take its monetary policy decisions going forward.

On growth, RBI maintained its projection of 7.6 per cent on a gross value addition basis, saying the favourable monsoon which is 3 per cent above the average which raises agricultural growth and rural demand and higher consumption on the back of the 7th Pay Commission implementation will be aiding it.

Consumer Price Index based retail inflation rose by 5.77 percent in June, the fastest pace in 22 months and it is expected that the implementation of the new Goods and Services Tax (GST) may push it up further.

RBI has also welcomed the passage of the Constitutional amendments for transition to the Goods and Services Tax saying it "augurs well for the growing political consensus for economic reforms."

Rajan, criticised for following hawkish monetary policy for too long before starting to lower rates, has reduced the benchmark interest rate by 1.5 percent since January last year, and has been persuading banks to fully transmit the benefit of the policy rate cut to customers.

With Agency Inputs