RBI keeps policy rate unchanged at 6.50%

Danish Siddiqui  Reuters                       Reserve Bank of India Governor Raghuram Rajan

“The stance of monetary policy remains accommodative and will continue to emphasize the adequate provision of liquidity”.

Since surprising India by announcing a return to academia when his term ends on September 4, Rajan has urged his yet-to-be-named successor to continue the fight against one of Asia’s highest inflation rates.

As expected, RBI kept the repo rate unchanged at 6.5 per cent.

On a positive note, ICICI Bank MD and CEO Chanda Kochhar said that the decision to keep the policy rate unchanged is already expected.

Mumbai: The Reserve Bank of India (RBI) left its key policy rate unchanged on Tuesday, taking cognisance of the recent rise in inflation which puts the consumer price index uncomfortably close to the upper tolerance threshold of 6% as mandated by the government.

The RBI held out the assurance that it would continue with both domestic liquidity operations and foreign exchange interventions to enable management of FCNR (B) deposit redemptions without market disruptions.

Talking to reporters at the customary post monetary policy press conference, Rajan said RBI is now focused on meeting the inflation glide path target of 5 per cent by March 2017.

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.

With less than a month before his tenure at RBI comes to an end, Governor Raghuram Rajan on Wednesday said that he was open to staying a bit longer to complete the unfinished work of bank books clean up.

But the RBI flagged on Tuesday that there were “upside risks” to that 5 percent target.

The governor said the rationale behind the current policy stance is the projected trajectory of inflation over the rest of the year due to increase in food prices, pulses and cereals. He has said that he plans to return to academia in the US.

He strongly defended his controversial public speeches as “perfectly legitimate” ones within the remit of a central bank head and asserted that he was never critical of the government in any instance.

RBI Governor Raghuram Rajan made light of his critics, describing his tenure as nothing less than “fantastic”.

With the system staring at an outflow of Dollars 26 billion in foreign currency deposits (FCNR-B), raised when the rupee was bleeding in September-November period of 2013 following the “taper tantrums” in the summer of that year, Rajan sought to assuage concerns of the banking system saying RBI will ensure there is no market disruption because of it. We expect oil prices to remain contained at $40-45 per barrel in 2016.

Twenty six out of 27 economists in a Bloomberg News survey predicted the bank would hold rates, after it cut them by 25 basis points in April to their lowest level since early 2011.

Mr Rajan said he wanted to achieve the 4 per cent number in a gentle way, without disrupting the economic growth.

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