Reserve Bank of India Governor Raghuram Rajan on Tuesday kept the key repo rate steady at 7.25 per cent as expected. Other key rates – the CRR or the cash reserve ratio and the SLR or the statuary liquidity ratio – were left unchanged at 4 per cent and 21.5 per cent respectively.
A status quo on interest rates was expected because retail inflation – the key parameter tracked by the RBI – edged up to an eight-month high in June. The continued uncertainty about monsoon rains, which irrigate nearly 60 per cent of the country’s farmlands, also likely weighed on RBI’s decision to hold rates, analysts say.
Dr Rajan has cut the key repo rate thrice this year, but the benefits for the broader economy have been limited because of commercial banks’ reluctance to lower their lending rates.
Tuesday’s monetary policy announcement comes amid a raging debate about a draft parliamentary bill that seeks to reduce the central bank’s independence to set interest rates.
The draft legislation, published last month for public comments, called for the creation of a rate-setting panel, removed a reference to the central bank governor’s veto power, and permitted the government to appoint more than half of its members.