India’s central bank kept its key policy rates and the reserve ratios unchanged in line with the predictions, while awaiting more robust data on inflation and action from commercial banks to soften their cost of credit to alter its stance.
Reserve Bank of India Governor Raghuram Rajan, who conducted the first bi-monthly review of the monetary policy for the current fiscal year decided to retain the repurchase rate, the reverse repurchase rate, the cash reserve ratio and the statutory ratio at existing levels.
Rajan said the central bank adopted an accommodative policy stance since January, ensuring comfortable liquidity in the system. “Going forward, the accommodative stance of monetary policy will be maintained, but monetary policy actions will be conditioned by incoming data.”
Accordingly, the repurchase rate and reserve repurchase rate have been maintained at 7.5 percent and 6.5 percent respectively while the cash reserve ratio and the statutory liquidity ratio have been left untouched at 4 percent and 21.5 percent.
The repurchase rate is the interest commercial banks pay for borrowing money from the central bank to meet short-term fund requirements. The reverse repurchase rate is the interest central bank pays when surplus short-term funds are parked with it by commercial banks.
The cash reserve and statutory liquidity ratios are the minimum mandated amounts of money against the deposits that commercial banks have to retain in the form of liquid assets. A change in this has a direct impact on the money available to banks to extend loans and other advances.