Rajan keeps policy rate unchanged on fears of food inflation

Reserve Bank Governor Raghuram Rajan today kept policy rate unchanged awaiting clarity on impact of unseasonal rains on food inflation even as he wanted banks to pass on benefits of previous two rate cuts.
The repo rate, at which RBI lends to the banking system, will continue to be at 7.5 per cent and the cash reserve ratio, which is the amount of deposits parked with the central bank, will remain at 4 per cent.
"Transmission of policy rates to lending rates has not taken place so far despite weak credit off take and front loading of two rate cuts. With little transmission, and the possibility that incoming data will provide more clarity on the balance of risks on inflation, the Reserve Bank will maintain status quo," he said in the first bi-monthly policy review for 2015-16.

Unseasonal rains and hailstorm have impacted rabi crops across North and Western India, raising fears of spike in food prices.
Rajan, who has surprised with two rate cuts of 0.25 per cent each outside the scheduled review meetings this year, however, affirmed his commitment to the accommodative stance, but added that policy moves will be shaped by incoming data and added that transmission of rate cuts by banks will be his top-most priority.
Apart from the transmission, other factors like food prices will also be monitored closely, he said, adding that the impact of the recent unseasonal rains will also be monitored closely.

"Reserve Bank stays vigilant to any threats to the disinflation that is underway," he said, expecting that the price rise situation has so far faired according to its estimates.