In his last monetary policy review today, Reserve Bank of India Governor, Raghuram Rajan decided against changing the key interest rates as the retail inflation continues to be above the comfort zone.
Outgoing RBI Governor has left Repo rate and CRR unchanged at 6.50 per cent and 4 per cent respectively. The central bank has retained GDP growth projection at 7.6 per cent for 2016-17.
Following are the highlights of RBI's third bi-monthly monetary policy statement, 2016-17:
* Repo rate unchanged at 6.50 per cent, Reverse Repo at 6%
* Cash reserve ratio or CRR unchanged at 4%
* Growth forecast at 7.6% for the current fiscal
* Inflation target remains 5% for January 2017; upside risk
* Normal monsoon, 7th Pay Commission award to boost growth
* GST roll out to boost business sentiment, investment
* Timely implementation of GST a challenge
* Premature to talk about inflationary impact of GST
* FCNR(B) redemptions not to disrupt liquidity in market
* Banks have passed on rate cut benefit only modestly
* FAQ on KYC norms on RBI website for easy reference
* Marginal Cost Lending Rate framework for interest rate to be modified
* Forex reserves at USD 365.7 billion on August 5
* Fourth bi-monthly monetary policy on October 4
The government announced last week that it would like the RBI to focus on maintaining retail inflation rate of 4 per cent for the next five years, based on which the new interest rate setting panel would take its monetary policy decisions going forward.
The move, which provides for a margin of plus or minus 2 per cent in this target thus fixing the upper tolerance level at 6 per cent till 2021, is being seen as government putting the seal on Rajan's inflation-first model of monetary policy.
Consumer Price Index based retail inflation rose by 5.77 per cent in June, the fastest pace in 22 months and it is expected that the implementation of the new Goods and Services Tax (GST) may push it up further.
Rajan, criticised for following hawkish monetary policy for too long before starting to lower rates, has reduced the benchmark interest rate by 1.5 per cent since January last year, and has been persuading banks to fully transmit the benefit of the policy rate cut to customers.
This is going to be the last bi-monthly monetary policy to be decided by the central bank Governor as the broad-based 6-member panel may take over the job before the next review on October 4.
In conjunction with naming its 3 members on the Monetary Policy Committee, the government is also likely to name a successor to Rajan sometime this month.
Rajan is set to retire on September 4 after three-year term ends. He has said that he plans to return to academia in the US.
