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Reserve Bank keeps policy rates unchanged

September 30: Reserve Bank of India Governor Raghuram Rajan left all key rates unchanged citing increased risks to inflation and difficult external situation, especially on the geopolitical front.

This is the fourth consecutive time that the RBI has kept key interest rates unchanged despite clamours from the industry to cut rates to boost the economy.

The short-term lending rate (repo) now stands at 8%, and the cash reserve requirement of banks at 4%. The statutory liquidity ratio (SLR) has also been retained at 22%.

Explaining the rationale for the status quo policy, Rajan said though WPI inflation has ebbed to levels consistent with 8% inflation by January 2015, "there are risks from food price shocks as the full effects of the monsoon's passage unfold, and from geo-political developments that could materialise rapidly."

He said that there are "uncertainties" over food inflation even though the 6% retail inflation target by January 2016 remains a possibility.

"The future policy stance will be influenced by the RBI's projections of inflation relative to the medium term objective of 6% by January 2016, while being contingent on incoming data," Rajan said.

The RBI also retained the growth projection for the current fiscal at 5.5%. The apex bank sees FY16 growth at 6.3%.