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RBI opts for status quo, promises rate cut if inflation drops

Tuesday, 3 June 2014 - 4:42pm IST | Agency: PTI

The Reserve Bank today kept interest rates unchanged but unlocked about Rs 40,000 crore of banking funds by cutting the SLR and promised to ease rates if inflation softens at a faster pace. This is the second consecutive time that RBI Governor Raghuram Rajan has kept interest rates unchanged, belying hopes of any reduction in EMIs for home and auto loans.

The repo rate, at which the RBI lends to banks, has been retained at 8% and the cash reserve ratio (CRR) has been kept unchanged at 4%. The statutory liquidity ratio (SLR), the mandatory amount of bonds lenders must park at the RBI, has been cut by 0.5% to 22.5% of their net demand and time liabilities (NDTL) with effect from June 14.

Commenting on the RBI policy, Finance Minister Arun Jaitley said the central bank has adopted a "calibrated approach" in its bi-monthly monetary policy. "At this juncture, it is appropriate to leave the policy rate unchanged, and to allow the disinflationary effects of rate increases undertaken during September 2013-January 2014 to mitigate inflationary pressures in the economy," Rajan said. 

Rajan, who has increased the repo rate thrice since September, said no more tightening would be warranted if the economy stays on a disinflationary course. He added that the RBI may also consider a cut if the disinflation process is faster than anticipated.

Industry chambers hailed the apex bank's move to slash SLR, saying it will give banks more room for onward lending to the corporate sector. The BSE Sensex surged 173.74 points to end at fresh closing peak of 24,858.59 points. 

On growth, Rajan maintained the RBI's median estimate of GDP expansion coming in at 5.5% for this financial year.




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