The Reserve Bank of India today continued with its status quo for the second straight policy review and kept unchanged its key policy rates as it awaits clarity on the government’s fiscal position and more information on inflation.
India’s central bank kept the repo rate at 6.75%, and the cash reserve ratio remained at 4% of net demand and time liability. The RBI last slashed interest rates in September by 50 basis points.
“Going forward, under the assumption of a normal monsoon and the current level of international crude oil prices and exchange rates, inflation is expected to be inertial and be around 5% by the end of fiscal 2016-17,” RBI Gov. Raghuram Rajan said. “However, the implementation of the Seventh Central Pay Commission award, which has not been factored into these projections, will impart upward momentum to this trajectory for a period of one to two years.”
The government-constituted pay commission, which revises pay scales every 10 years, has recommended a hike of 23.55% in pay and allowances of government employees. The recommendation is likely to be implemented around the middle of the year.
“The Reserve Bank will adjust the forecast path as and when more clarity emerges on the timing of implementation. Vagaries in the spatial and temporal distribution of the monsoon and the impact of adverse geopolitical events on commodity prices and financial markets add additional uncertainty to the baseline,” he said, stressing that the RBI will continue to remain accommodative.
The wholesale price index in December was negative 0.73%, while retail inflation rose to 5.61%.