Zee Media Bureau
New Delhi: Reserve Bank on Tuesday left interest rate unchanged in its annual monetary policy due to increased food prices after unseasonable rains in various parts of the country.
The repo rate, at which the Reserve Bank of India lends to banks, has been retained at 7.50 percent. The cash reserve ratio for banks has also been kept unchanged at 4 percent.
"Transmission of policy rates to lending rates has not taken place so far despite weak credit off take and front loading of two rate cuts. With little transmission, and the possibility that incoming data will provide more clarity on the balance of risks on inflation, the Reserve Bank will maintain status quo," Raghuram Rajan said in the first bi-monthly policy review for 2015-16.
CPI inflation is projected at its current levels in the first quarter of 2015-16, moderating thereafter to around 4 percent by August but firming up to reach 5.8 percent by the end of the year.
Assuming a normal monsoon, continuation of the cyclical upturn in a supportive policy environment, and no major structural change or supply shocks, output growth for 2015-16 is projected at 7.8 percent, higher by 0.30 percent from 7.5 percent in 2014-15, but with a downward bias to reflect the still subdued indicators of economic activity.
RBI had lowered its policy rate by 25 basis points to 7.50 percent on March 4, after a similar cut on January 15, on the back of softening inflation and the government's commitment to continue with the fiscal consolidation programme. Both the rate cuts were announced outside RBI's regular policy review.
The consumer price index rose 5.37 percent in February, marking a fifth consecutive month of staying within the RBI`s target of 2 to 6 percent.
Earlier-than-expected rainfall in parts of the country have pushed up prices of winter crops, such as wheat and pulse. As per an Assocham study, the damage could be at least 25-30 percent to the crop yields.
With Agency Inputs
