MUMBAI: The Reserve Bank of India Monday kept interest rates unchanged giving priority to checking inflation over growth, disappointing India Inc and retail borrowers who were expecting at least 0.25 per cent rate cut.
It also rejected the widespread demand for reduction in Cash Reserve Ratio (CRR) to pump in more money into the banking system.
Unveiling the mid-quarter monetary policy review, RBI said, “Reduction in the policy interest rate at this juncture, rather than supporting growth, could exacerbate inflationary pressure”.
While the short term lending rate (repo) has been kept unchanged at 8 per cent, the CRR, portion of deposits banks are required to park with the RBI, will be 4.75 per cent.
The wholesale inflation was 7.55 per cent in May. At the retail level, the Consumer Price Index (CPI) inflation for May was 10.36 per cent.
RBI’s action, according to Indian Finance Minister Pranab Mukherjee, was influenced by the current price situation.
“(High inflation)…might have weighed their (RBI’s) decision making process…normally in mid-quarter review, it is not necessary for the Governor to consult the Minister,” he said in New Delhi after the policy announcement.
Mukherjee had said on Saturday that he was expecting the RBI to “adjust” the monetary policy to fuel growth.
Stock markets, which opened with gains in the morning on rate cut hopes and on positive developments in Greece, reacted negatively. The BSE Sensex fell sharply by over 200 points after the policy announcement.
Assocham President Rajkumar Dhoot said, “We are disappointed that RBI ignored all expectations, including observations of the Finance Minister about the need for a rate cut.” -PTI