RBI keeps key interest rates unchanged, warns on inflation

Reserve Bank of India Governor Raghuram Rajan on Tuesday left all key rates unchanged citing increased risks to inflation and difficult external situation especially on the geopolitical front.

This is the fourth consecutive time that the RBI has kept key interest rates unchanged despite clamours from the industry to cut rates to boost economy. The short-term lending rate (repo) rate now stands at 8 per cent, and the cash reserve ratio(CRR) of banks at 4 per cent.

The statutory liquidity ratio (SLR) has also been retained at 22 per cent. Explaining the rationale for status quo policy, Rajan said though Wholesale Price Index (WPI) inflation has ebbed to levels consistent with 8 per cent inflation by January 2015, there are risks from food price shocks as the full effects of the monsoon's passage unfold, and from geo-political developments that could materialise rapidly.

He said that there are uncertainties over food inflation even though 6 per cent retail inflation target by January 2016 remains a possibility. The future policy stance will be influenced by the RBI's projections of inflation relative to the medium term objective of 6 per cent by January 2016, while being contingent on incoming data, Rajan said.

The RBI also retained the growth projection for the current fiscal at 5.5 per cent. The apex bank sees FY16 growth at 6.3 per cent. Stock markets gained on RBI's policy announcement with BSE Sensex trading at 26661.95 points at 11:50 am.