Rajan leaves key rates unchanged; repo rate unchanged at 6.5 pct

Reserve Bank of India (RBI) Governor Raghuram Rajan in his last monetary policy review kept the repo rates unchanged at 6.5 percent and the Cash Reserve Ratio (CRR) unchanged at four percent.

Addressing the media at the third BI-Monthly Monetary Policy Statement 2016-17, Rajan decided to keep the policy repo rate under the Liquidity Adjustment Facility (LAF) unchanged at 6.5 percent, while the CRR of scheduled banks unchanged at 4.0 percent of net demand and time liabilities.

Consequently, the reverse repo rate under the LAF will remain unchanged at six percent and the Marginal Standing Facility (MSF) rate and the Bank Rate at seven percent.

Talking about the FCNR-B window, which matures towards the end of his term, Rajan said that he does not expect outflows to be materially disruptive to the financial system.

"The FCNR window netted India USD 34 billion in foreign inflows at the height of the rupee crisis in September 2013. With the rupee more or less stable now, India can afford to let that money return," Rajan said.

"In the next few months, we expect continuity in the RBI's policymaking. In particular, the government's notification of the inflation target at 4.0 percent and additional -2.0 percent through to 2021 denotes ongoing commitment to keeping inflation at moderate levels," he added.

Meanwhile, Rajan said the formation of a monetary policy committee is in line with common practice in many central banks around the world.

Giving his stance over the good monsoon India received this year, Rajan said, "The larger than average monsoon rainfall will help maintain moderate food price inflation, contributing to keeping headline inflation within or close to target this year. Medium-term, we assume that inflation will remain moderate."

On being asked about the Goods and Services Tax (GST) Bill, Rajan said, "GST implementation will boost business sentiment and eventually investment."

The policy will be the last one chaired by Rajan as his three-year term comes to end on September 4.