News

RBI keeps rate unchanged,
disappoints markets, industry

2015-02-03

PTI

Mumbai, Feb 3 : Disappointing markets and the industry, RBI Governor Raghuram Rajan today left interest rate unchanged, saying there are no developments to warrant further easing since the unscheduled rate cut about a fortnight ago.

RBI kept the benchmark repurchase rate at 7.75 per cent, but cut the statutory liquidity ratio (SLR) - the amount of funds that lenders must set aside - by 50 basis points to 21.5 per cent of deposits from February 7, a move that will help banks to increase lending.

Rajan also hoped that more banks will pass on the rate cut announced last month to the borrowers. Only a few banks had lowered their rates after the cut.

Announcing the sixth bi-monthly monetary policy review, Rajan said: "Given that there have been no substantial new  developments on the disinflationary process or on the fiscal outlook since January 15, it is appropriate for the Reserve Bank of India to await them and maintain the current interest rate stance."

Stock markets fell sharply soon after the policy was announced, with banking stocks hit the worst.

RBI announced a slew of initiatives to develop markets, including allowing foreign institutional investors to re-invest government bond coupons even when their investment limits are exhausted.

To help exports sector, which of late has been struggling following more headwinds in the global economy, it decided to replace export credit refinance facility with the provision of system level liquidity with effect from February 7.

The Central bank reiterated that it wanted more comfort on inflation front and "high-quality fiscal consolidation" as well as signals from Finance Minister Arun Jaitley's first full year budget, due at month end.

Rajan said inflation was likely to be around the target level of 6 per cent by January 2016 but flagged monsoon, oil prices and "the unlikely possibility of significant fiscal slippage" as upside risks.

Current account deficit was projected at 1.3 per cent of GDP this fiscal and even lower in the next, primarily on slumping international oil prices.

Rajan, who made inflation-fighting a priority since taking over 17 months ago, had sprung a surprise on January 15 when he cut interest rates by 25 basis points in an unscheduled review.

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