RBI monetary policy: Raghuram Rajan says no rate cut

• keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.5 per cent;

• keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liabilities (NDTL); and

• continue to provide liquidity as required but progressively lower the average ex ante liquidity deficit in the system from one per cent of NDTL to a position closer to neutrality.

The Reserve Bank of India Governor Raghuram Rajan, as expected maintained the status quo in his last announcement of monetary policy announcement as he will be stepping down from the post on September 4.

In today's monetary policy announcement, RBI decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.5%. 

The central bank in a release said that it has been decided to keep cash reserve ratio (CRR) of scheduled banks unchanged at 4% of net demand and time liabilities (NDTL). The bank has also decided to continue to provide liquidity as required but progressively lower the average ex ante liquidity deficit in the system from one per cent of NDTL to a position closer to neutrality.

Further, the reverse repo rate under the LAF will remain unchanged at 6%, and the marginal standing facility (MSF) rate and the Bank Rate at 7%.

"Among emerging market economies, activity remains varied. GDP growth stabilised in China in Q2, on the back of strong stimulus. Manufacturing activity was weak in July due to adverse weather and subdued export demand, although smaller firms recorded an uptick in new orders. Recessionary conditions are gradually diminishing in Brazil and Russia, but the near-term outlook is still fragile due to policy uncertainties and soft commodity prices", RBI said.

As ZeeBiz had earlier reported, Consumer Price Index (CPI) based retail inflation rose by 5.77% 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.

"The rise was mainly driven by food, with vegetable inflation higher than the usual seasonal rise at this time of the year. Sugar prices also firmed up due to a decline in domestic production after two successive years of drought. While pulses inflation started moderating, prices of pulses have been rising again since April after a short-lived correction in the previous quarter. Inflation pressures are also incipient in cereals. These developments fed through into households’ inflation expectations three months ahead, reversing the decline seen in the last two quarters", RBI added​​.

 Before the next review on October 4, a six-member Monetary Policy Committee will be formed that will decide the monetary policy. Also, by this month, Rajan's successor will also be decided. 

Last week, the government after the consultation with RBI announced the inflation rate target at 4% for the next five years, based on which the panel will take monetary policy decisions from now onwards.

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