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Tuesday, 7 June 2016

RBI Credit Policy: RBI keeps key rates unchanged, says inflation risks have gone up



A status quo on rate action was factored in by experts as India grew at a phenomenal 7.9 percent for the March quarter and by 7.6 percent for the last fiscal year. Retail inflation, largely driven by food prices, inched up to 5.4 percent in April from 4.8 percent in the previous month, making it difficult for the RBI to cut rates any further.The Reserve Bank of India governor kept the benchmark repo rate
unchanged at 6.5 percent, largely on the back of strong economic tailwinds. Other key policy rates like Cash Reserve Ratio and Statutory Liquidity Reserve too have been kept unchanged. However, the central bank warned that inflation risks were on the upside even as it retained the inflation targets set out in the April policy. On the positive side, the RBI said its policy stance continues to remain 'accomodative.' The GDP growth target for the current fiscal has been retained at 7.6 percent by the RBI. Since the rate-cutting cycle began in January 2015, the key policy repo rate has been cut by 150 basis points to 6.50 percent. However, on the lending side, only about 75 percent basis point cut has been passed on to customers by the banks. A status quo on rate action was factored in by experts as India grew at a phenomenal 7.9 percent for the March quarter and by 7.6 percent for the last fiscal year. Retail inflation, largely driven by food prices, inched up to 5.4 percent in April from 4.8 percent in the previous month, making it difficult for the RBI to cut rates any further. A key disappointment was India’s factory output in March, which was weaker than anticipated, coming in at just 0.1 percent after expanding by 2 percent in February. This will be the last time the banking regulator governor will get to decide on the rate as a joint committee comprising government and RBI nominees will take over from the next policy meet. Analysts had said the possibility of a rate cut was low and Governor Raghuram Rajan’s focus would be more on managing liquidity and tackling inflation.

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