RBI keeps interest rates unchanged

Also, keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.75 pct.

In its fifth bi-monthly monetary policy statement, RBI said that CPI inflation excluding food, fuel, petrol and diesel also rose for three consecutive months on account of price increases in respect of housing, recreation and amusement, and personal care and effects.

The RBI’s focus is on inflation, however, and it has predicted consumer price inflation will spike to 5.8 per cent in January, having struck record lows of around 3.6 per cent earlier this year, inflation was up to five per cent in October.

Stating that inflation is expected to accelerate till December before plateauing, Rajan said it may follow RBI’s projected path “with risks slightly to the downside”. Data on Monday showed the economy grew 7.4 percent in the July-September quarter, faster than China, but below the government’s goal of 8.0 to 8.5 percent annual growth.

The RBI has also kept the GDP forecast unchanged at 7.4 per cent with a moderate downward bias, while saying that economy is showing signs of early recovery.

“The RBI’s decision to maintain status quo was in line with expectations, given that there has already been a reduction of 50 basis in the last policy”, Confederation of Indian Industry director general Chandrajit Banerjee said in a statement here.

Rajan reiterated his hope that Indian banks will clean up their balance sheets [of bad loans] by March 2017.

By controlling these rates, the RBI controls the rate of interest in the economy.

Economists expect the RBI to start cutting rates soon.

Repo Rate- It is the rate of interest charged by the central bank of a country while lending to a commercial bank in the event of any shortfall in supply of money by selling their securities to the central bank with an agreement to buy it back at a later date. “Although the seasonal moderation in prices of vegetables and fruits is expected to provide some respite, the El Nino induced shortening of winter may limit this effect”, the RBI said.

With the seventh pay panel’s recommendations of a 23.55 per cent hike in salaries leading to concerns on the impact on inflation in future, RBI said the government will have to do “appropriate budgetary tightening” to reduce the impact and it will be watching the space. “We’re focusing on transmission because less than half the cumulative 125 basis points reduction in policy rates has been passed by banks”, Rajan said.

Mumbai, Dec. 1: The Reserve Bank of India left benchmark rates unchanged today, but home and vehicle loan borrowers can look forward to lower interest burdens in the days ahead.