After three consecutive rate cut, RBI keeps interest rate unchanged at 7.25 per cent

With the flow of odds, Raghuram Rajan kept the interest rate unchanged at 7.25 per cent and CRR at 4 per cent. The Reserve Bank of India (RBI) held the rates steady in its policy review today. At the bi-monthly policy review today, RBI refused to cut the repo rate. Thus, After three consecutive rate cut, RBI keeps interest rate unchanged at 7.25 per cent

 

So far in 2015, RBI has reduced the rate by 75 basis points. During the last policy review (2nd June 2015), Rajan made it clear that the behaviour of monsoon will be a critical factor for the central bank to decide on the course of interest rates going ahead. However, an improvement in the monsoon and a fall in fuel prices have raised the hope of rate cut in this quarter too.

 

In June, after easing policy rates, Rajan mentioned that further moves in rate cut depending on inflation outlook. Arundhati Bhattacharya, chairperson of State Bank of India said that “the CPI (consumer price inflation) has gone up a little. Though, it is mainly on account of food prices. The RBI has been benchmarking it to the CPI number, I think it is unlikely for any rate cut.”

 

Taking the view of other reasons for keeping the repo rate unchanged, RBI highlighted:

• Increase in service tax rate from June this year;
• Increase in price of some food items in recent months;
• Inflation conditions have evolved as projected in April and June but there was upside in the month of June. However, RBI is expecting to pull down the inflation in coming month.

 

The PTI quoted a finance ministry official as saying inflation shouldn’t be a reason for the RBI to not cut rates since lower commodity prices and negative wholesale inflation gives room for rate cut. However, in the Reuters poll, majority of analysts predicted the repo rate would be cut to 7 by the end of December.

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