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The uncertainty over the South-West monsoon’s progress and the persistent inflationary pressures prompted the Reserve Bank of India to hold its key repo rate steady at 7.25 per cent.
The status quo, announced in the third bi-monthly monetary policy statement on Tuesday, was widely expected by bankers and economists.
Since the repo rate (the interest RBI charges banks for short-term funds) is unchanged, banks too are likely to maintain status quo on deposit and lending rates.
Explaining the rationale, RBI Governor Raghuram Rajan said the most worrisome factor is the sustained hardening of inflation, excluding food and fuel. Moreover, the full impact of the service tax increase, which took effect from June, will feed through over the rest of the year.
“Some food prices, particularly of protein-rich items, pulses and oilseeds have risen sharply in recent months. They will have to be carefully monitored as they tend to be sticky and impart upward bias to inflation and inflation expectation,” said the Governor.
The RBI pointed out that near-term inflation expectations of households returned to double-digits after two quarters.
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