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RBI keeps rate unchanged, waits for cues from budget

Reserve Bank Governor Raghuram Rajan today left the key interest rate unchanged citing inflation risks and growth concerns, while pegging further easing of monetary policy on government’s budget proposals.

Rajan said RBI “continues to be accommodative” but would look forward to the government’s budget proposals on February 29 as also the inflation trend.

RBI, which had cut interest rate by 125 basis points or 1.25 per cent in 2015, retained the benchmark repo (lending) rate at 6.75 per cent for the second straight bi-monthly policy of the current fiscal. The next review or the first for the 2016-17 is scheduled for April 5.

“The Reserve Bank continues to be accommodative even as it leaves the policy rate unchanged in this review, while awaiting further data on the development of inflation,” he said while unveiling the sixth and final bi-monthly monetary policy for 2015-16.

He said structural reforms in the budget “that boost growth while controlling spending will create more space for monetary policy to support growth” and ensure inflation hits the target of 5 per cent in March 2017.

“On the domestic front, economic activity lost momentum in the third quarter of 2015-16, pulled down by slackening agricultural and industrial growth,” he said.

Rajan pegged the growth rate for the current financial year at 7.4 per cent, which, he hoped, would accelerate to 7.6 per cent in the next fiscal.

“For 2016-17, growth is expected to strengthen gradually, notwithstanding significant headwinds… Based on an assessment of the balance of risks, GVA (Gross Value Added) growth for 2016-17 is projected at 7.6 per cent,” he said.