Repo rate unchanged; banks not lowering EMIs is ‘nonsense’: Raghuram Rajan

Mumbai: The Reserve Bank of India kept interest rates on hold at 7.5 per cent on Tuesday, waiting for more clarity on inflation after heavy rains raised uncertainty about food prices and seeking to grant banks more time to reflect its previous rate cuts.

Policy based on structural reforms, interest on domestic reforms and improvement in the growth outlook and GDP were some of the highlights of RBI's policy review. Reports state that RBI has also indicated on more accommodative policy stance based on macro-economic data. It also expects the retail inflation to stabilise at 5-5.5% in FY16.

Raghuram Rajan also raised a question to the banks and said, ‘When banks have to raise rates, they quote higher policy rates. Why don't they cut when policy rates go down.’

"Transmission of policy rates to lending rates has not taken place so far despite weak credit off take and 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," he said in the first bi-monthly policy review for 2015-16. Unseasonal rains and hailstorm have impacted rabi crops across North and Western India, raising fears of spike in food prices.

Apart from the transmission, other factors like food prices will also be monitored closely, he said, adding that the impact of the recent unseasonal rains will also be monitored closely. "Reserve Bank stays vigilant to any threats to the disinflation that is underway," added further, expecting that the price rise situation has so far faired according to its estimates.

The RBI had lowered its policy rate by 25 basis points to 7.5 per cent on March 4, after a similar cut on January 15, on the back of softening inflation and the government's commitment to continue with the fiscal consolidation programme. Both the rate cuts were announced outside RBI's regular policy review.