India’s RBI keeps interest rates unchanged
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.
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.