SRINAGAR: The Reserve Bank of India Tuesday kept its policy rates unchanged, with its Governor Raghuram Rajan stating that the headline inflation is at elevated levels while banks are yet to pass on the full benefits of previous rate cuts.
The reports carried by New Delhi-based media said the central bank, which has cut the rates thrice so far in 2015 by 25 basis points each, however raised hopes of a reduction before the end of this year “if the monsoon maintains its near-normal progress” to keep farm product prices in check and oil prices stay steady.
As a result of the decision, the repo rate, at which the RBI lends to the system, will remain unchanged at 7.25 per cent and the cash reserve ratio, which is the proportion of deposits banks have to park with the central bank, will remain 4 per cent.
“It is prudent to keep the policy rate unchanged at the current juncture,” the RBI Governor, Raghuram Rajan, was reported to have said.
Rajan said significant uncertainty on the factors influencing the monetary policy will be resolved in the coming months, including persistence of high inflation, monsoon as well as actions by the US Federal Reserve, which is expected to shift to hiking rates.
He reiterated that the accommodative stance of the RBI adopted this year was based on factors like transmission of RBI cuts by banks into their lending rates, food prices and monsoon, action from the government on the supply side and signs of normalisation in the US.
Using strong words against banks for holding on to rates in the April and June, Rajan said banks have only cut 0.30 per cent at the median level as against the RBI’s cut of 0.75 per cent this year. He hoped that with a likely pick-up in loan demand from the third quarter, banks will see more gains from cutting rates to secure new lending and transmission will take place.
Welcoming the government move to infuse more capital into state-run banks, Rajan said it will help both loan growth as well as transmission as the liquidity conditions ease.