In­dia’s RBI keeps in­ter­est rates un­changed

The China Post - - WORLD BUSINESS - BY ADITYA PHATAK

In­dia’s cen­tral bank kept in­ter­est rates un­changed Tues­day, say­ing most com­mer­cial banks have yet to pass on two pre­vi­ous cuts to cus­tomers in Asia’s third largest econ­omy.

Af­ter meet­ing in the fi­nan­cial cap­i­tal Mumbai, the Re­serve Bank of In­dia ( RBI) said the bench­mark repo rate — the level at which it lends to com­mer­cial banks — would re­main un­changed at 7.50 per­cent.

The RBI’s de­ci­sion to hold rates had been widely an­tic­i­pated by econ­o­mists who said it would re­main cau­tious due to in­fla­tion con­cerns, in­clud­ing the im­pact on food prices of crop dam­age from ear­lier than ex­pected rains.

Ris­ing food prices are a crit­i­cal is­sue in In­dia where even mi­nor in­creases cause hard­ship for its tens of mil­lions of poor.

But RBI Gov. Raghu­ram Ra­jan said the de­ci­sion was also based on the fact that com­mer­cial banks have been re­luc­tant to lower their own lend­ing rates.

The RBI has al­ready cut rates twice this year in an at­tempt to en­cour­age lend­ing to busi­nesses and boost eco­nomic growth to help cre­ate jobs for mil­lions of young peo­ple.

But only a few of In­dia’s banks — sad­dled with bad loans and see­ing lower prof­its — have passed them on to cus­tomers.

“Trans­mis­sion of pol­icy rates to lend­ing rates has not taken place so far,” said Ra­jan.

“With lit­tle trans­mis­sion, and the pos­si­bil­ity that in­com­ing data will pro­vide more clar­ity on the bal­ance of risks on in­fla­tion, the RBI will main­tain sta­tus quo in its mon­e­tary pol­icy stance in this re­view,” he said in a state­ment.

Ra­jan told re­porters he was con­fi­dent banks would even­tu­ally cut their rates be­cause of com­pet­i­tive pres­sures “and the sooner they do, the bet­ter it will be for the econ­omy.”

“I do not see an en­vi­ron­ment where credit growth is tepid. Banks are sit­ting on money, so to speak, and their mar­ginal cost of fund­ing has fallen. The no­tion that it hasn’t fallen is non­sense,” he said.

AP

Re­serve Bank of In­dia (RBI) Gov. Raghu­ram Ra­jan speaks dur­ing a press con­fer­ence af­ter the an­nounce­ment of the first bi-monthly mon­e­tary pol­icy state­ment 2015-16 in Mumbai, In­dia on Tues­day, April 7.

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