RBI keeps rates unchanged, disappoints industry & stock market

Stock market too reacted strongly and tanked suffering loss of 244 points at closing.

In its mid-quarter review, the RBI said it had "frontloaded the policy rate reduction in April with a cut of 50 basis points...Our assessment of the current growth-inflation dynamic is that there are several factors responsible for the slowdown in activity, particularly in investment with the role of interest rate being relatively small.

"Consequently further reduction in the policy interest rate at this juncture, rather than supporting growth, could exacerbate inflationary pressure".

The short term lending rate (repo) will remain unchanged at 8 per cent and the Cash Reserve Ratio (CRR), portion of deposits banks are required to park with the RBI, will be 4.75 per cent.

While Finance Minister Pranab Mukherjee said high inflation weighed on RBI's mind, Commerce and Industry Minister Anand Sharma expressed his anguish over RBI choosing a status quo when the industrial growth was down.

"The RBI's decision whatever reason ... Is disappointing and will not help in reversing the trend when it comes to the core sector manufacturing...I shall definitely be writing both to the Finance Minister and the RBI Governor," Sharma said.

The wholesale inflation was 7.55 per cent in May. At the retail level, the Consumer Price Index (CPI) inflation for May was 10.36 per cent.

The stock market reacted negatively with the BSE Sensex falling by by 244 points.

Industry chambers were also unhappy and said the RBI could have lifted the investment sentiments by cutting rates.