RBI will not hold rates high any longer than necessary: Rajan
Zee Media Bureau
The Reserve Bank of India (RBI) will not hold interest rates high any longer than is necessary, and if disinflation proceeds as warranted, there will eventually be room to cut rates, governor Raghuram Rajan told a media briefing after the policy review.
The central bank is monitoring the liquidity situation and trying to keep the call money rate close to 8 percent, Rajan said.
RBI governor said there are upside risks to inflation in view of uncertain monsoon and its impact on food production as also volatile international oil prices.
"It is...Appropriate to continue maintaining a vigilant monetary policy stance as in June, while leaving the policy rate unchanged," he said.
On retail inflation, which cooled down to 7.31 percent in June, Rajan said that while achievement of the 8 percent target for January 2015 is not a worry, there are "upside risks" to its ambitious target of lowering it further to 6 per cent by 2016.
This warrants a "heightened state of policy preparedness," he said, adding that supply will increase with the government measures on food management and project completion.
"The RBI will act as necessary to ensure sustained inflation," said Rajan, who has often surprised with hawkish, anti-inflationary policies.
On growth, he said the central estimate of 5.5 percent GDP growth for 2014-15 can be sustained and added that prospects for growth have "improved modestly".
"Sentiment on domestic economic activity appears to be reviving," Rajan said.
India`s central bank kept its key policy repo rate unchanged today as widely expected, but warned about inflationary risks should a shortfall in monsoon rains spark 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 agency inputs