RBI credit policy review: Know why the central bank kept rates on hold

Know the key reasons due to which the RBI on Tuesday kept rates unchanged at its bi-monthly monetary policy review.

Here are the key reasons due to which the RBI on Tuesday kept rates unchanged at its bi-monthly monetary policy review.

The repo rate, at which the Reserve Bank of India lends to banks, has been retained at 6.75 percent. The cash reserve ratio for banks has been kept unchanged at 4 percent.

Inflation: RBI mostly tracks the Consumer Price Index-based retail inflation for its monetary policy decisions.

Rising for the third straight month, retail inflation climbed to 5 percent in October as against 4.62 percent in the same month a year ago due to costlier pulses and other food items.

At the same time, deflationary pressure eased a bit with WPI inflation rate moving up slightly to (-)3.81 percent in October as pulses, vegetables and onion turned costlier.

Falling rupee: Concern about selling by foreign investors sent the rupee to a two-year low on Friday. During November, it lost more than 2 percent against the US dollar, one of the worst performances in Asia, as foreign investors sold USD 1.5 billion in bonds and stocks.

US Federal Reserve: Although India has outperformed other emerging markets over the past two years, the country is not immune to Fed-related worries. Meanwhile, the Federal Reserve is widely expected to raise US rates in December for the first time in nearly a decade.

7th Pay Commission report: A recent pay hike to government employees and potential food price shocks could easily push up consumer price inflation from the 5 percent hit in October, analysts warned. The pay hike is also expected to impact India's fiscal health.

Interest rate transmission: Most of the banks have yet to pass the rate cut benefits to their borrowers.