The Reserve Bank of India (RBI) on Tuesday kept interest rates unchanged at its bi-monthly monetary policy review amid lingering concerns over inflation, after having already cut the repo rate by a sharper 50 basis points at its last meet.
The repo rate, at which the Reserve Bank of India lends to banks, has been retained at 6.75 per cent. The cash reserve ratio (CRR) for banks has been kept unchanged at 4 per cent.
Inflation based on the consumer price index rose to 5 per cent in October, from 4.41 per cent in September, mainly on the back of rising food prices.
Analysts are of the view that the Reserve Bank of India is likely to wait for the Budget announcement before proceeding further. The two key events the central bank is watching are the upcoming Fed event and the impact of the 7th Pay Commission recommendations.
There is a possibility that interest rates in the US might eventually go up for the first time since the global economic crisis of 2008. Federal Reserve rate-setters are meeting on December 15-16 to take a call on this.
The central bank is also mindful of the inflationary impact of a falling rupee, which has already hit a two-year low against the dollar recently.
Mr. Rana Kapoor, MD & CEO, YES BANK said, “After front loading the 50 bps rate cut in its last policy meeting, RBI stood pat today. In the accompanying commentary, RBI has decisively focused on domestic factors of improving growth and an anchored inflation trajectory; allowing it to downplay the impact of Fed lift-off likely later this month.”
“Going forward, I believe RBI will have a scope to ease rates in Q4 as CPI inflation comfortably undershoots the 6.0% Jan-16 target and the Government reaffirms its commitment to fiscal consolidation while embarking on key reforms of Bankruptcy code, UDAY and GST. Meanwhile, I am confident, that economy’s revival and ongoing efforts to clean their balance sheets will offer banks the opportunity to push monetary transmission beyond the 60 bps seen this CY,” added Mr. Kapoor.