Mumbai/Nagpur: As expected, the Reserve Bank of India has kept its policy interest rate unchanged at a five-year low of 6.50 per cent on Tuesday, while signalling the prospect of another cut later this year if monsoon rains dampen upward pressure on food prices.
RBI Governor Raghuram Rajan, a much admired former International Monetary Fund chief economist, could be chairing his penultimate policy review, with investors waiting to hear whether the government plans to extend his three-year term beyond September.
However, market buzz is that he is likely to be offered another two years, should he want it, but markets were spooked after a regional newspaper cited sources close to Rajan saying he could walk away.
What the RBI governor said today…:
RBI Governor Raghuram Rajan today kept the key policy rate unchanged citing higher upside risks to ‘inflation trajectory’ but said the central bank will remain accommodative provided data are supportive. Accordingly, Rajan retained the short-term lending rate at 6.5 and the cash reserve requirement of banks at 4 per cent.
“The inflation surprise in the April reading makes the future trajectory of inflation somewhat more uncertain… rising crude prices and implementation of the seventh pay commission awards being the key risks,” Rajan said in the second bimonthly monetary policy for the current fiscal.
Explaining the rationale for keeping the rates unchanged, Rajan said: “Incoming data since the April policy announcement show a sharper-than-anticipated upsurge in inflationary pressures emanating from a number of food items (beyond seasonal effects), as well as a reversal in commodity prices.