Rajan holds repo rate at 6.5% in final RBI policy

MUMBAI: Your monthly instalments on home and personal loans will remain the same as the RBI kept key interest rates unchanged when it reviewed its monetary policy on Tuesday.

The repo rate — at which RBI lends to banks — and the cash reserve ratio, which indicates the portion of bank funds parked with the central bank, were kept at previous levels of 6.5% and 4%, respectively.

Outgoing RBI governor Raghuram Rajan said interest rates were left untouched because of unexpected rise in food prices, as a cut in rates would fuel increased economic activity that could push up prices.

It was widely expected that the RBI would hold on to the interest rates as inflation currently is at a 22-month high of 5.77%, closer to the upper tolerance limit of the fixed target of 4% for the next five years.

The government had recently accepted the RBI’s target of 4% inflation for the next five years.

The RBI, however, issued a positive outlook, saying a good monsoon would lower food prices. Also, the central bank said the goods and services tax (GST) bill passed by Parliament this week for a uniform market is not expected to impact more than half of the items that push up or down retail inflation, or the consumer price

index (CPI).

Rajan’s last policy measure was expected, and the industry appreciated his move.

“If we are to interpret the notes in his swansong, he is leaving on a high note having delivered on what he promised — a very strong foreign exchange reserve position, a steady rupee, a national focus on keeping inflation low, and the country’s liquidity position improving from deficit to surplus,” said Mahindra Group CFO VS Parthasarathy.

“He has prepared the stage for the new incumbent to play a symphony.”

The government has, however, yet to announce Rajan’s successor. He is due to step down on September 4 after a three-year term to return to academia and family living in the US.