The Reserve Bank of India (RBI) on Tuesday kept key policy rates unchanged, preferring to wait for more clarity and data on transmission by banks in terms of lower lending rates, a possible rate raise by the US Federal Reserve and the outlook on retail inflation.
Since its first cut rates in January this year, the median base lending rates of banks has fallen by around 30 basis points, a fraction of the 75 basis points in rate cut so far this year- the last being 25 basis points in June.
“We are looking whether the recent increase in inflation is temporary and whether the monsoon will continue to be near normal. The oil price development is very beneficial and we will await greater transmission of our past actions by banks while we look and monitor developments for emerging room,” RBI Governor, Raghuram Rajan said.
Headline consumer price index (CPI) inflation rose to 5.40 per cent for the second successive month in June 2015 to a nine-month high on the back of a broad based increase in upside pressures, belying consensus expectations.
Some food prices, particularly of protein-rich items, pulses and oil seeds have risen sharply in recent months. “They will have to be carefully monitored as they tend to be sticky and impart an upward bias to inflation and inflation expectations. This assumes significance in view of households’ inflation expectations rising again,” he said.
The central bank’s repo rate — the cost at which banks borrow from the Reserve Bank of India — has been kept unchanged at 7.25 per cent and the cash reserve ratio too — at four per cent.