Here's why RBI governor Raghuram Rajan's no rate cuts decision is a wise move!

Following a major rate cut in the last policy review meet, the Reserve Bank of India has kept its key policy rates unchanged this time around. The decision is in line with the market expectations as consumer inflation increased in th past four months.

According to economists, the decision has also been taken as the fiscal deficit of the country is expected to widen because of some of the recent changes in government's policies such as hike in the seventh pay commission, higher capital infusion in public sector banks among others.

However, the decision is not expected to adversely impact the economy as RBI governor Raghuram Rajan has previously slashed rates by a whopping 1.25% in the current fiscal year, thus making enough rooms for banks to lower interest rates, thus making loans a tad cheaper for both corporate and retail investors.

Besides, any further rate cut by Rajan, could also worsen the situation as the US Fed hike is expected to happen anytime this month, which could adversely impact the Indian capital markets. With no rate cuts, RBI governor Rajan has sent a cue to the government to lay down a path for a strong fiscal consolidation plan.

The RBI kept its repo rate unchanged at 6.75%. while the cash reserve ratio (CRR) has been maintained at 4%. The Reserve Bank 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," Rajan said.

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