RBI Governor Raghuram Rajan on Tuesday kept the key policy rate unchanged citing higher upside risks to 'inflation trajectory' but said the central bank will remain accommodative provided data are supportive.
Explaining the rationale for keeping the rates unchanged, Rajan said: "Incoming data since the April policy announcement show a sharper-than-anticipated upsurge in inflationary pressures emanating from a number of food items (beyond seasonal effects), as well as a reversal in commodity prices.
Some important points to emerge are:
1. Rajan retained the short-term lending rate (repo or repurchase rate) at 6.5 per cent and the cash reserve ratio of banks at 4 per cent. Repo rate is the standard rate at which the RBI lends money to banks for a short term while cash reserve ratio refers to a certain proportion of total deposits that banks are required to park with RBI in the form of cash.
2. The reverse repo rate for short-term borrowings was raised to 6 per cent from 5.75 per cent. It is the rate at which RBI borrows money from banks.
3. Growth projection has been retained at 7.6 per cent for 2016-17 on the back of increased consumption and corporate profits.
4. The inflation projections given in the April policy have been retained with an upside bias due to crude oil prices and implementation of seventh pay commission.
5. “The inflation surprise in the April reading makes the future trajectory of inflation somewhat more uncertain,” Rajan said.
(With PTI Inputs)