Rajan leaves key rates unchanged; repo rate unchanged at 6.5 pct

Reserve Bank of India (RBI) Governor Raghuram Rajan left the benchmark interest rate unchanged on Tuesday citing “upside” risks to its target of 5 per cent inflation by March 2017.

Pointing out that the central bank continued to be accommodative, he said in a statement that “it is appropriate for the Reserve Bank to keep the policy repo rate unchanged at this juncture, while awaiting space for policy action”.

The central bank is also implementing a liquidity framework indicating a move toward zero liquidity deficit.

We maintain our view that inflation will be sustainably lower at 4.5% YoY in QE Mar-17 as we expect drivers of both food and non-food inflation to remain supportive of a deceleration in inflation.

Talking to reporters at the customary post monetary policy press conference, Mr Rajan said RBI is now focused on meeting the inflation glide path target of 5 per cent by March 2017.

In June this year, Rajan, much loved by investors and well-respected by academia, disclosed his decision – through a letter to central bank staff – that he did not intend to pursue a second term in office as RBI governor. “We have to see that price adjustment, if there is one, doesn’t become generalised inflation”, he said.

Marginal standing facility (MSF) rate:7.0 per cent.

Rajan charged bankers with inventing newer alibi for delaying the rate cuts and pointed out that concerns over the FCNR (B) redemptions, despite RBI’s public assurance of making it non-disruptive, are the latest one in a series.

They were banking on Rajan’s previous quotes about erring promoters, intolerant groups and India being the one-eyed king in the land of the blind; they also hoped (against hope) for a repeat of his famous quote on being Raghuram Rajan. The agreement between the government and the RBI says that the latter can not allow inflation to rise above six percent for more than three-quarters at a time.

Mumbai: Allaying fears of market disruption in view of Dollars 20 billion worth of redemptions in foreign deposit accounts in the coming months, the Reserve Bank on Tuesday said it will continue with domestic liquidity operations and foreign exchange interventions to ensure smooth repayments. “What matters is how these (measures) play out in the longer run for stronger and sustainable growth for the country, for job creation, movement into middle income (country)”, he said while presenting his last bi-monthly monetary policy review.

That is close to the upper end of the 4 percent plus/minus percentage points monetary policy target of the RBI that was accepted by the government last week.

“Despite easy liquidity, banks have passed past rate cuts into lending rates only modestly”.