Reserve Bank of India (RBI) Governor Raghuram Rajan today left the key repo rate unchanged at 6.75 percent at the first bi-monthly monetary policy of 2016.
The key reasons for no change by the RBI remained its wait for the Budget. The RBI also left the Cash Reserve Ratio and Statutory Liquidity Ratio unchanged, despite concerns that liquidity is tight in the system.
The RBI indicated that it was on course to meet its January 2016 target of keeping consumer inflation below six percent though it upped its January 2017 target from 4.8 percent earlier to five percent (subject to upward risks arising out of Pay Commission rollout).
The RBI has cumulatively reduced rates by 1.25 percentage points in the past year while banks on average cut their base lending rates by 0.6 percentage point until November-end.
Lower rates could dent the savers' sentiments while prompting global investors, seeking safety of dollar-backed assets amid global turmoil, to exit emerging markets such as India at least for the time being.
The government marginally revised the GDP growth downward for FY15 to 7.2 percent from 7.3 percent last Friday. It estimated earlier a sluggish economy even though it stayed above the psychologically significant seven percent mark for two consecutive years.
Speculations are rife that the government may miss the fiscal deficit next fiscal to push capital spending as it has high cash balances at Rs. 1.42 lakh crore.
