RBI keeps key rates unchanged

Mumbai, Aug 9 (PTI): Reserve Bank of India governor Raghuram Rajan, citing upside risks to the central bank's inflation target for March 2017, on Tuesday left all key rates and ratios unchanged at his last policy review meeting, as was widely expected.

But he stressed that the RBI continues to be accommodative.

The RBI left the short-term lending rate or repo rate unchanged at 6.50 per cent, and the cash reserve ratio static at four per cent.

The RBI said it continues to expect a GDP or gross domestic product growth rate of 7.6 per cent.

The RBI said the timely implementation of the Goods & Services Tax, which has to kick-in by April 2017, will be “challenging” but the indirect tax reform will strengthen government finances over the medium-term, boost business sentiment and eventually investments.

”The current accommodative stance of monetary policy and comfortable liquidity conditions should also provide a congenial environment for the reinvigoration of aggregate demand conditions,” the policy document said.

On inflation, he iterated that RBI will look through the statistical effect of house rent allowance increase because of the Seventh Pay Panel implementation, but its impact on inflation expectations will have to be “carefully monitored”.

Inflation rose to 5.8 per cent in June and is widely expected to rise further in July before cooling-off once the food prices climb down on the good monsoons. Inflation measured by wholesale prices rose for the fifth consecutive month to 1.68 per cent for June.

The RBI, which has now become an 'inflation-targeting' central bank, wants to get the headline inflation number down to 5 per cent by March 2017.