RBI held the Repo Rate at 6.75% awaiting banks to pass on the so far rate cuts

 

Reserve Bank Governor Raghuram Rajan held repo rate steady at 6.75 per cent in his monetary policy announcement on Tuesday. The same was widely expected after consumer inflation picked up to a four-month high. RBI held the Repo Rate at 6.75% awaiting banks to pass on the so far rate cuts.

The cash reserve ratio (CRR) of scheduled banks remains unchanged at 4.0 per cent. On September 29, Rajan had cut repo rate by 50 basis points to four-year low of 6.75 per cent. In all, the central bank has cut by 125 basis points this year in a bid to spur economic growth.

 

Though the key policy rate remain unchanged but affirmed the central bank’s commitment to ease it as and when room is available, saying inflation is likely to perform better than expected.

 

But Rajan said further rate cuts would be dependent on inflation and external developments, while reiterating his call for banks to lower their lending rates to reflect the steep easing undertaken by the RBI this year.

 

The cash reserve ratio, which is the amount of deposits lenders need to keep with RBI, remains unchanged at 4 per cent. The statuary liquidity ratio, or the percentage of deposits that lenders have to maintain in the form of gold or government bonds, was also retained at 21.5 per cent.

 

He also announced that RBI will shortly finalise the methodology for base rate calculation as per the marginal cost of funds which will be mandatory for banks. Additionally, the government is examining linking small savings interest rates to market interest rates.

 

These moves should further help transmission of policy rates into lending rates,” said RBI.

Bankers have argued that relatively high rates offered on small savings by the government are preventing them from reducing deposit rates and hence lending rates.

 

RBI once again prodded banks to pass on the rate cuts announced so far. Banks have pared rates by about 75 bps in response to RBI’s 125 bps in rate cuts this year. RBI held the Repo Rate at 6.75% awaiting banks to pass on the so far rate cuts.

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