Reserve Bank of India (RBI) governor Raghuram Rajan, who unveiled his last monetary policy before exiting next month, on Tuesday said a broad-based multi-member panel will decide on the interest rate at the next review on 4 October.
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RBI retained repo rate under the liquidity adjustment facility at 6.5%.
In the previous policy update, too, conducted on June 7, the policy rates were left unaltered.
Some new concern may crop up after the FCNR (B) redemptions, Rajan said.
They highlight the bank’s accommodative stance and its close monitoring of data, and note that ongoing uncertainty remains about the effects of monsoons on food prices. “It is appropriate for the Reserve Bank to keep the policy repo rate unchanged at this juncture, while awaiting space for policy action”.
Rajan’s remarks on possibility of positive impact of monsoon on inflation and continuing accommodative stance towards interest rates augur well for achieving sustainable growth, Assocham said.
Rajan has lowered rates by 150 bps since January last year to their lowest in more than five years, but economists doubt whether the current easing cycle has much further to run.
It eventually closed 97.41 points or 0.35 per cent down at 28,085.16 points.
“Earlier in the day, RBI Governor Raghuram Rajan said “as we have reiterated in the past, we do not see the FCNR (B) repayments as disruptive”. In particular, the government’s notification of the inflation target at 4 percent +/-2 percent through to 2021 denotes ongoing commitment to keeping inflation at moderate levels. It expected the momentum of economic growth to increase due to good monsoon rains. Terming his tenure as “fantastic”, Rajan said, “Snap judgements by critics do not matter as I have made useful contributions and the results will be visible in the next 5-6 years”. On the whole, he said, this new tax regime should boost government finances and investor mood.
Stubbornly high food prices in recent months led the bulk of analysts to believe the central bank would stay on hold for the second straight time; June’s meeting saw Rajan leave rates unchanged following a 25 basis point cut in April.
In the 50-share index, 17 stocks ended higher while 34 closed lower, reported NDTV.
FICCI President Harshavardhan Neotia said that the country’s economic situation is slowly improving and a policy rate cut would have translated into more investments.
“The monetary policy committee needs to be perceived as neutral”, said Shubhada Rao, an economist with Yes Bank Ltd.in Mumbai.
“Easy liquidity conditions are already prompting banks to modestly transmit past policy rate cuts and pro-active liquidity management should facilitate more pass-through”, it added. The governor in his press conference also hinted that RBI is nearly 40% through in achieving liquidity neutrality. Room for rate cuts on future would depend on how inflation fares.
The Governor’s focus has been on the transmission of rate cuts, rather than rate cuts.
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Bankers, however, ruled out any immediate cuts and said interest rates will fall only once credit growth picks up.
