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RBI keeps key rates unchanged; to assess the impact of unseasonal rains

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By Newsgram Staff Writer

The Reserve Bank of India decided to keep the policy repo rate at 7.5 per cent in its monetary policy statement, and the cash reserve ratio (CRR) of scheduled banks at 4.0 per cent on Tuesday.

The RBI governor Raghuram Rajan kept the policy rate unchanged until the impact of unseasonal rains on food inflation is decided.  He also wanted banks to pass on benefits of previous two rate cut .

“Transmission of policy rates to lending rates has not taken place so far despite weak credit off take and the front loading of two rate cuts. With little transmission, and the possibility that incoming data will provide more clarity on the balance of risks on inflation, the Reserve Bank will maintain status quo in its monetary policy stance in this review,” said the governor.

The decision of doing so has been taken cause of the fears of spike in food prices as the unseasonal rains and hailstorm have impacted rabi crops across North and Western India.

The authorities from RBI stated that, “The RBI will await the transmission by banks of its front-loaded rate reductions in January and February into their lending rates. Transmission of policy rates to lending rates has not taken place so far despite weak credit off take and the front loading of two rate cuts.”

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RBI Won’t Hesitate on Steps for Financial Stability, Says Governor

Das further said that in a flexible inflation targeting framework, a delicate balance needs to be maintained between inflation and growth objectives

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Reserve Bank of India. VOA

Assuring the crisis-hit NBFC sector will be monitored, Reserve Bank of India Governor Shaktikanta Das on Friday said the central bank will not hesitate to take any required measure to maintain the financial stability of the economy.

In a lecture at the Lal Bahadur Shastri National Academy of Administration, Mussoorie, on the “evolving role of central banks”, Das also said that financial stability is major factor considered in the RBI’s monetary policy.

“In the non-banking sector, the Reserve Bank has recently come out with draft guidelines for a robust liquidity framework for the NBFCs. We are also giving a fresh look at their regulatory and supervisory framework. It is our endeavour to have an optimal level of regulation and supervision so that the NBFC sector is financially resilient and robust,” he said.

“The Reserve Bank will continue to monitor the activity and performance of this sector with a focus on major entities and their inter-linkages with other sectors. The Reserve Bank will not hesitate to take any required steps to maintain financial stability,” he added.

Reserve Bank of India. Wikimedia Commons

The liquidity crisis in the non-banking financial companies (NBFC) came to light when IL&FS defaulted on a commercial paper in September.

Das further said that in a flexible inflation targeting framework, a delicate balance needs to be maintained between inflation and growth objectives.

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“Post global financial crisis, it has been recognised that price stability may not be sufficient for financial stability and therefore financial stability has emerged as another key consideration for monetary policy, though jury is still out as to whether it should be added as an explicit objective of monetary policy.

“The fact remains that though the focus of monetary policy is mainly on inflation and growth, the underlying theme has always been financial stability,” the Governor said. (IANS)