The Reserve Bank of India on Tuesday kept the key repo rate unchanged at 6.5% on Tuesday. The announcement was made by RBI Governor Raghuram Rajan during the central bank's second bi-monthly monetary policy review for the current fiscal. The reverse repo rate will also be kept the same, at 6%.
Experts had predicted a similar move, saying Rajan would maintain policy interest rates and employ a wait-and-watch attitude, with retail inflation rising to 5.39% in April.
In the previous monetary policy review, held in April, the RBI had lowered the repo rate – the rate at which it lends to commercial banks – by 25 basis points to 6.5%. The repo rate helps control inflation, which is one of the major concerns of RBI. A higher repo rate means banks have less incentive to borrow from the central bank, reducing the money supply in the economy and thus keeping inflation in check.
However, the central bank had raised the reverse repo rate – or the rates commercial banks charge the central bank – by 25 basis points to 6%.
The cash reserve ratio was also maintained at 4%. CRR is the minimum percentage of deposits that banks have to hold in cash or as deposits with the central bank. This is also used to control money supply in the economy.
Meanwhile, there are still doubts if Rajan, who took over as the RBI Governor on September 4, 2013, will continue for a second term. An online petition, filed last month on change.org by a Bengaluru resident, has till date garnered more than 60,000 votes in favour of Rajan's second term. The current RBI Governor also has the support of Indian corporate bigwigs, who have voiced their preference for an extension of his tenure.