RBI Policy: Governor Rajan keeps key rates unchanged

Reserve Bank Governor Raghuram Rajan kept key rates unchanged, as was widely anticipated, at his last policy review before he bids adieu early September.Inflation is expected to stay within the RBI's target zone but recent increase in food prices and a pick-up in economic growth led the RBI to stay put, Rajan said at the policy conference."Risks to the inflation target of 5 percent for March 2017 continue to be on the upside," according to an RBI release. In terms of immediate outcomes, much will depend on the benign effects of the monsoon on food prices, the note said.  While most people remain apprehensive that the rollout of goods and services tax (GST) will stir up inflation, Rajan said the central bank will continue to stay in an accommodative mode and GST may not necessarily come in the way. Governor Rajan has lowered rates by 150 basis points since January last year, bringing the policy repo rate down to 6.5 percent, and he has argued that the benefits would have been far greater if banks had been less reluctant to lower lending rates.So far, banks have cut rates only by about 75 basis points, Rajan noted, expressing hope transmission will increase once banks are done with cleaning up their books.  The Reserve Bank will also look to continue with both domestic liquidity operations and foreign exchange interventions to enable management of the FCNR(B) redemptions without market disruptions, the release said.In his three-year stint, the outgoing Reserve Bank chief has been able to refuel growth, prep up reserves, stabilise the currency, cool down inflation and initiate a number of reforms in the banking space.His term, however, was marred by some political opposition in the wake of his generally combative stance on inflation.Further, the Reserve Bank will specifically announce more steps to boost P2P lending, marginal cost of lending framework and corporate bond market."I have 28 days left [in my term], which I intend to use fully," Rajan said.