RBI keeps key rates unchanged

December 1, 2015 Naresh Sagar

Reserve Bank kept the key policy rates unchanged in its fifth bi-monthly monetary policy review today.The repo rate, at which RBI lends money to banks, stayed at 6.75 per cent, while the reverse repo rate, at which RBI borrows money from banks, was at 5.75 percent.
The cash reserve ratio, which is the amount of deposits lenders need to keep with RBI, also remained unchanged at 4 per cent. The statuary liquidity ratio, or the percentage of deposits that lenders have to maintain in the form of gold or government bonds, was retained at 21.5 per cent. The marginal standing facility (MSF) rate and the Bank Rate at 7.75 per cent.
The GDP forecast was unchanged at 7.4 per cent with a moderate downward bias, with the apex bank saying that the economy has showed signs of early recovery.

The apex bank also assessed that the inflation target for January next year at 6 per cent was within reach.It has called for better supply management of food items to contain inflation arising from Rabi crop shortfall.RBI also said that it will shortly announce methodology for determining the base rate taking into account the marginal cost of funds, a move aimed at ensuring that banks pass on policy rate cuts to borrowers.

On the policy review, RBI Governor Raghuram Rajan said that all steps are being taken to broaden and open up the economy further, but in a steady manner and not like a big bang. He said, they will use the space for further accommodation, when available, while keeping the economy anchored to the projected disinflation path that should take inflation down to 5 per cent by March 2017.

Mr Rajan said, RBI will monitor developments on the commodity prices, including food and oil and external developments in its future policy formulations. He also said that RBI will closely watch the impact of the 7th Pay Commission on inflation for future policy deliberations.

The RBI Governor also said that Inflation is expected to broadly follow the path set out in the September review with risks slightly on the downside. He also expressed anguish at the banks’ reluctance to pass on the benefits of the earlier rate cut actions to the borrowers.

RBI had cut repo rate by 50 basis points in the last policy review. In all, the central bank has cut 125 basis points this year in a bid to spur economic growth. The sixth bi-monthly monetary policy will be announced on 2nd February next year.