RBI leaves repo, CRR, SLR, FY16 growth projection unchanged

Moneycontrol BureauThe Reserve Bank of India (RBI) kept benchmark repo rate unchanged at 6.75 percent, after lowering it by 50 basis points, or front-loading policy action in September 2015. It has also left CRR and SLR unchanged at 4 percent and 21.5 percent, respectively.The RBI has cut repo rate four times (125 basis points) since January 2015.
RBI governor Raghuram Rajan said: "We will use the space for further accomodation, while keeping an eye on inflation." The RBI has also kept economic growth projection unchanged at 7.4 percent for FY16. However, the central bank has cautioned that the uptick in CPI inflation, ex-food and fuel warrants vigilance. "While oil prices, barring geopolitical shocks, are expected to remain benign for a few quarters more, the uptick of CPI inflation excluding food and fuel for two months in succession warrants vigilance," the RBI statement said. The RBI in fact expects inflation to rise further until December before plateauing. The outlook for agriculture is subdued, in view of both rabi and kharif prospects being hit by monsoon vagaries, the RBI statement said.The central bank has also kept the reverse repo rate under the LAF unchanged at 5.75 percent, and the marginal standing facility (MSF) rate and the Bank Rate at 7.75 percent.Governor Rajan also said that he is focussing on transmission, and has barely seen half the rate cuts since January. He also said when times warrant, the RBI will be prepared to move off cycle. During normal times ofcourse it would stick to policy dates for rate action.Rajan said that the economy is certainly seeing early stages of recovery, with some areas of continued weakness. "On the domestic front, provisional estimates of gross value added (GVA) at basic prices for Q2 of 2015-16 rose on the back of acceleration in industrial activity. Other indicators suggest the economy is in the early stages of a recovery, though with some areas of continued weakness."Going ahead, the RBI will follow developments on commodity prices, especially food and oil, even while tracking inflationary expectations and external developments. The RBI also said the implementation of the Pay Commission proposals, and its effect on wages and rents, will also be a factor in the Reserve Bank's future deliberations, though its direct effect on aggregate demand is likely to be offset by appropriate budgetary tightening as the government stays on the fiscal consolidation path.