RBI keeps key rates unchanged; looking the Union Budget 2016-17 for taking the next action
On the basis of an assessment of the current and evolving macroeconomic situation, RBI has decided to:
• keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.75 per cent;
• keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liability (NDTL);
• continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 14-day term repos as well as longer term repos of up to 0.75 per cent of NDTL of the banking system through auctions; and
• the reverse repo rate under the LAF will remain unchanged at 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 7.75 per cent.
Also, Rajan hinted at accommodative stance saying with inflation moving closer to the target there would be more room for rate cut to support growth.
He also said that the RBI will now eye the government’s annual budget statement at the end February to decide on whether to cut interest rates further.
“Structural reforms in the forthcoming Union Budget that boost growth while controlling spending will create more space for monetary policy to support growth, while also ensuring that inflation remains on the projected path of 5 per cent by the end of 2016-17,” Rajan said during the review.
He also said that “Inflation has evolved closely along the trajectory set by the monetary policy stance. With unfavourable base effects on the ebb and benign prices of fruits and vegetables and crude oil, the January 2016 target of 6 per cent should be met.”
The RBI Governor said the Indian economy is being viewed as a beacon of stability because of the steady disinflation, a modest current account deficit and commitment to fiscal rectitude.
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