Rajan keeps rates intact;blasts banks for being stingy on cuts

Staying put on his inflation-focussed monetary policy, outgoing RBI Governor Raghuram Rajan today kept key rates unchanged citing upside risk to prices of food and services even as he said the central bank remains 'accommodative' and blamed banks for being tight-fisted in passing on previous rate cuts.
Banks, however, ruled out any immediate lowering of rates for retail borrowers and industry, which has been pitching hard for steps to make the capital cheaper to push growth.
In the third bi-monthly policy review of this fiscal, RBI kept the benchmark repurchase rate (at which RBI lends to the system) at 5-year low of 6.50 per cent. This is the second review in a row when Rajan has maintained the status quo.

The reverse repo rate, which is paid to banks, remains 6 per cent, while Cash Reserve Ratio will stay at 4 per cent.
Stock markets reacted negatively, though RBI hoped to meet inflation target of 5 per cent for March 2017 and maintained its GDP growth forecast at 7.6 per cent despite a weak global economic scenario.
Presenting his last monetary policy review, Rajan, who has decided to return to academia after end of his three-year tenure on September 4, came down heavily on banks for "only modestly" passing on the benefits of previous five policy rate cuts since January 2015, on one pretext or the other.

He said "easy liquidity conditions" and market competition should prompt banks to lower the rates, while announcing that changes are underway to the way banks decide their lending rates. He apprehended however that lenders would list yet another 'concern' for keeping rates high.

Rajan, whose tenure at RBI has been marked with a string of controversies with some accusing him of focussing too much on inflation at the cost of growth, sought to make light of his critics saying he has also been getting 'anonymous thank you notes' even while on plane. He exuded confidence that measures taken by RBI during his term would continue to show positive results.

He said the new rate-setting regime under a six-member Monetary Policy Committee - a cause he championed - should be in place before the next review on October 4. That would make today's review the last one to be led by the Governor alone.
Rajan, former IMF Chief Economist and on-leave Professor of Finance at Chicago University, said the clean-up process of the banks' balance sheets is on track.