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RBI keeps key lending rates unchanged
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SME Times News Bureau | 04 Aug, 2015
Ignoring the clamour for an
easing of monetary policy, India's central bank kept its key lending
rates unchanged on Tuesday, sticking to its stand that further cut can
only be effected if commercial lenders pass on the previous reductions
to borrowers.
Having cut its short-term lending rates thrice thus
far in this calendar year, to bring it down to 7.25 percent, Reserve
Bank of India (RBI) Governor Raghuram Rajan said a host of factors led
to a status quo on Tuesday's monetary policy update.
"Since the
first rate cut in January, the median base lending rates of banks has
fallen by around 30 basis points, a fraction of the 75 basis points in
rate cut so far," Rajan said in the central bank's monetary policy
update at the Mint Street headquarters here.
"As loan demand
picks up in Q3 of 2015-16, banks will see more gains from cutting rates
to secure new lending, and more transmission will take place," he said,
adding liquidity will not be a cause for worry since the government has
decided to infuse more capital into state-run banks.
He, however, expressed some areas of concern, while also some cheering factors.
"Turning
to the balance of inflation risk, most worrisome is the sustained
hardening of inflation excluding food and fuel. Moreover, the full
effects of the service tax increases that took effect from June, will
feed through over the rest of the year," he said.
"The outlook
for growth is improving gradually. Favourable real income effects could
accrue from weaker commodity prices, in particular crude oil, and a
possible step-up in agricultural activity if monsoon conditions continue
to improve," he added.
"Taking into account all this and 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."
As a result of the
policy update on Tuesday, the repurchase rate, or the short-term lending
rate of the central bank, remains unchanged at 7.25 percent and so does
the cash reserve ratio (CRR), or the liquid money banks have to
compulsorily hold, at 4.00 percent.
Accordingly, the reverse repo rate, or the central bank's short-term borrowing rate, remains at 6.25 percent.
The markets did not appear to have taken the policy update negatively.
Ahead
of the announcements, the sensitive index (Sensex) of the Bombay Stock
Exchange had fallen to 27,963.71 points, after opening somewhat higher
at 28,225.04 points, against the previous close at 28,187.06 points.
But
soon after, at around 11.30 a.m., the index rose to around 28,200
points -- mainly on account of Rajan's announcement at a post-update
press conference that the bank will soon launch rupee-denominated bonds.
Experts feel this could add around $5-6 billion to India's foreign exchange reserves.
During
the assessment, Rajan also did not think much of investment-led growth,
while maintaining the country's gross domestic product (GDP) growth at
7.6 percent for the current fiscal, and an inflation target of around 6
percent in January next year.
"Notwithstanding some improvement
in the state of stalled projects, supply constraints continue to be
binding and new investment demand from the private sector and central
government remains subdued," the central bank governor said.
As
far as price rise and average citizens are concerned, he said: "Some
food prices, particularly of protein-rich items, pulses and oilseeds
have risen sharply in recent months. They will have to be carefully
monitored as they tend to be sticky and impart an upward bias to
inflation."
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
|
66.20
|
64.50 |
UK Pound
|
87.50
|
84.65 |
Euro
|
78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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