RBI keeps repo rate unchanged at 7.25%, CRR unchanged at 4%

The Reserve Bank of India (RBI) on Tuesday maintained status quo and kept repo rate unchanged at 7.25%. Cash Reserve Ratio (CRR) also remained the same at 4%.

Due to high inflation and laggered monsoons in some parts of the country, the repo rate was same.

RBI Governor Raghuram Rajan said that sustained hardening of inflation exuding food and fuel was ‘worrisome’.

RBI says policy stance to be conditioned by fuller transmission of rate cuts by banks, food prices and U.S. Fed normalisation signs
“Monsoon were near normal. We will closely follow the food price inflation as it is often sticky,” said Rajan.

This is the third monetary policy review of this financial year.

RBI decided to continue to provide liquidity under overnight repos at 0.25% of bank wise NDTL at the LAF repo rate and liquidity under 14-day term repos as well as longer term repos of up to 0.75% of NDTL of the banking system through auctions.

Rajan added that weak exports have a prolonged effect on the GDP.

Although overall business confidence is positive, the level of optimism was a shade lower in April-June than in the preceding quarter. Investment, as measured by new projects, is still weak, primarily because of still-low capacity utilization. In the critically important power sector, where final demand is strong, the recent step-up in generation in response to the commendable easing of bottlenecks in coal supply is being partly negated by structural problems relating to clogging of transmission grids and the dire financial state of electricity distribution companies (DISCOMs).

India Inc had pitched for a rate cut owing to low wholesale inflation and slowdown in industrial growth.

The central bank has lowered its policy rate by three-quarters of a percentage point since embarking on an easing cycle in January. The last cut lowered the repo rate to 7.25% on June 2.

The retail inflation in June increased to an eight-month high of 5.4% and the overall Wholesale Price Index (WPI) based inflation was -2.4% in the same month.