RBI will not hold rates high longer than necessary, says Raghuram Rajan

Reserve Bank of India (RBI) Governor Raghuram Rajan has said the central bank will not hold interest rates high longer than necessary and will have room to cut rates if disflation continues.

The apex bank in its monetary policy review on Tuesday kept the repo rate unchanged at 8 per cent. The reverse repo rate was kept unchanged at 7 per cent and cash reserve ratio (CRR) was maintained at 4 per cent.

The statutory liquidity ratio (SLR), the mandatory amount of bonds lenders must keep with the RBI, was cut by 0.5 per cent to 22.0 per cent of their net demand and time liabilities (NDTL) with effect from August 9, 2014.

On the SLR cut, Rajan told reporters at a media briefing after the third bi-monthly monetary policy review for fiscal 2014-15: "It is an obligation that put constraints on the balance sheet of the banks. And being in the new economy we have to think of bringing it down. The SLR cut was not intended to make loans cheaper today. It was to give banks more flexibility on its balance sheet going forward as some of the demands pick up."

He said: "We are trying to ensure that supply-side is encouraged. It's a fine balance that we are trying to draw and as often stated that we don't have too many tools. The interest tool is a very blunt tool, we are trying to use some of the other tool."