Rajan maintains status quo, wants banks to cut rates

Disappointing industry and the Government equally, Reserve Bank today kept the key policy rate unchanged citing inflationary concerns even as it expected banks to pass on the benefit of the previous rate cuts to borrowers.
After three cuts in seven months, the RBI decided to keep the benchmark lending (repo) rate unchanged at 7.25 per cent as also the cash reserve ratio (CRR) at 4 per cent.
Unveiling the third bi-monthly policy of this fiscal, Reserve Bank Governor Raghuram Rajan indicated that he could go for another rate cut ahead on the next policy on September 29 depending on the macro-economic data and how monsoon pans out.

"Given that policy action was front-loaded in June, it is prudent to keep the policy rate unchanged at the current juncture while maintaining the accommodative stance of monetary policy," Rajan said while justifying the status quo policy stance.
He further said that "the economic recovery is still work in progress... The outlook for growth is improving gradually." He retained the growth projection for the current fiscal at 7.6 per cent.
India Inc, however, described the RBI's status quo stance as a "missed opportunity". The Finance Ministry too has reasons to be unhappy, as the central bank has not heeded to its advice favouring a cut and that the RBI should not be solely guided by inflation.

As regards the impact of the policy on borrowers -- individuals and corporates-- observers feel much would depend on how the banks react to Rajan's advice to them for transmitting the earlier cuts.
While RBI reduced the benchmark policy rate by a total of 75 basis points or 0.75 per cent since January, banks have passed on only 0.3 per cent to borrowers, Rajan said.