Final task: Rajan Leaves Key Rates Unchanged

Mumbai: Reserve Bank of India (RBI) Governor Raghuram Rajan kept key policy rates unchanged with little elbow room on account of the country’s retail inflation inching closer to the upper tolerance level of six percent. On expected lines, Raghuram Rajan on Tuesday didn’t change repo rate and CRR in his last credit policy review as RBI Governor.

Accordingly, the repurchase (repo) rate or the interest commercial banks pay the central bank for short-term loans, remains unchanged at 6.5 per cent. The cash reserve ratio (CRR) that scheduled banks have to keep in the form of liquid funds also remains unaltered at four per cent of deposits.
In the previous policy update, too, conducted on June 7, the policy rates were left unaltered.

The repurchase (repo) rate or the interest commercial banks pay the central bank for short-term loans, remains unchanged at 6.5 per cent. The cash reserve ratio (CRR) that scheduled banks have to keep in the form of liquid funds also remains unaltered at four per cent of deposits. In the previous policy update, too, conducted on June 7, the policy rates were left unaltered.

This is also the last monetary policy update that will afford the central bank governor to fix policy rates with the government set to entrust the task to a soon-to-be-constituted Monetary Policy Committee.
The target inflation rate has already been set at 4 percent -- plus or minus 2 percentage points.

“Recent sharper-than-anticipated increase in food prices has pushed up the projected trajectory of inflation over the rest of the year. Strong improvement in sowing on the back of good monsoon rains and supply-side management auger well for food inflation outlook,” he said.

In view of this configuration of risks, it’s appropriate for the Reserve Bank to keep the policy repo rate unchanged at this juncture, while awaiting space for action. The stance of monetary policy remains accommodative and will continue to emphasise adequate provision of liquidity.

“In view of this configuration of risks, it’s appropriate for the Reserve Bank to keep the policy repo rate unchanged at this juncture, while awaiting space for action. The stance of monetary policy remains accommodative and will continue to emphasise adequate provision of liquidity.”

GST to raise returns on investments: Raghuram Rajan

Raghuram Rajan said the Goods and Services Tax (GST) should raise returns on investment (RoI) across much of the economy and strengthen government finances over the medium term.

The RBI did not outline any inflationary pressure arising from the recently approved GST and said the passage of Bill will augur well for the growing political consensus for economic reforms. Rajan said it’s premature to talk about inflationary impact of the GST as rates are yet to be decided.

“Inflationary impact of GST could be felt only in H2 FY18 & could be one-time, non-durable and limited,” RBI Deputy Governor said in a post-policy press conference.

The central bank kept policy repo rates unchanged at 6.5 percent as retail inflation rose to a 22-month high in June and stood at the upper range of the RBI’s target range of 2-6 per cent. Rajan has lowered rates by 150 basis points since January last year.

RBI flagged the recent sharper-than-anticipated increase in food prices pushing up the projected trajectory of inflation over the rest of the year along with prices of pulses and cereals and services inflation.

The RBI said prospects for inflation excluding food and fuel were also more uncertain.

“If the current softness in crude prices proves to be transient, inflation excluding food and fuel may likely trend upwards and counterbalance the benefit of the expected easing of food inflation,” Rajan said.

The RBI said the full implementation of the Seventh Pay Commission award will increase the impact of house rents on the CPI, and said growth stimulus to consumption spending can be expected from the disbursement of pay, pension and arrears with the implementation of the 7th Pay Commission.

RBI, however, expects growth to pick up with normal monsoon raising agricultural growth and rural demand.

Source: Agencies