RAJAN HOLDS INTEREST RATES

STATUS QUO Says war on inflation not yet over, industry disappointed

NEW DELHI: Reserve Bank of India (RBI) governor Raghuram Rajan kept lending rates unchanged on Tuesday, withstanding mounting pressure from industry leaders and belying the government’s hopes that he would lower borrowing costs to aid an incipient economic recovery.

A status quo on interest rates would imply that your monthly loan payouts (EMIs) are unlikely to fall soon despite recent moderation in inflation rates.

Ahead of the festival season, high loan rates could influence people’s decision to buy houses, cars and other consumer goods mostly bought through loans.

Rajan retained the repo rate—the rate at which banks borrow from RBI — at 8%, and kept the cash reserve ratio (CRR) — the proportion of deposits that banks have to park with the central bank—at 4%.

Budding revival signs in the broader economy and falling inflation rates had rekindled hopes that the bank would lower loan rates. RBI has forecast India’s GDP to grow by 5.5% in 2014-15, and by 6.3% the year later, endorsing a growing body of expert opinion that the Indian economy is climbing out of its deepest slump in 25 years.

Industry leaders have been clamouring for cheaper loans. T he gover nment has also expressed hope that the central bank would signal a reversal of its prolonged hawkish stance that is seen as affecting growth.

Rajan, however, made it clear that the RBI would not compromise on its commitment on price control till it is convinced that inflation is fully tamed.