MUMBAI: RBI Governor Raghuram Rajan surprised the markets on Wednesday by leaving all key policy rates unchanged, notwithstanding persistent high inflationary pressure.
The short-term lending rate was kept unchanged at 7.75 per cent, while the cash reserve ratio (CRR) remained at 4 per cent, the Reserve Bank of India said in its mid-quarter monetary policy review.
The decision to keep rates unchanged will be a big breather for the industry and retail borrowers in particular as the markets had expected another 25 bps hike in the short-term lending rate.
The Reserve Bank said it will take “calibrated action” in the future, based on inflationary trends and action by the US Federal Reserve.
The status quo decision came as a surprise as only last week the RBI had pulled up banks for not helping it in monetary policy transmission.
Rajan said continuing weakness in growth was the main driver of his policy action.
State Bank of India Chairperson Arundhati Bhattacharya said the bank would not contemplate cutting deposit rates as it really hurts the depositors and we would not like to do that. Our rates are still higher than what it was on July 15, I see no immediate response toward rate cut.
“In view of the fact that liquidity is ample in the system, we will definitely be looking at the rates and we will try to see if something needs to be done...may be for the bulk (depositors) we might look at doing something.”
Commenting on the policy, Prime Minister’s Economic Advisory Council (PMEAC) Chairman C Rangarajan said: “It is a difficult balancing act...I certainly think that the priority to RBI is price stability and therefore they should keep continuous watch on what is happening to inflation.”
Analysts are of the opinion that inflation has peaked and will ease from December as food prices cool on better supplies with winter crops coming in.
Rajan, however, sounded cautious when he said, “The policy decision is a close one. Current inflation is too high. However, given the wide bands of uncertainty surrounding the short-term path of inflation from its high current levels, and given the weak state of the economy...there is merit in waiting for more data to reduce uncertainty.”
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