Raghuram Rajan maintains status quo on policy rates; repo rate unchanged at 6.5%

Reserve Bank of India governor Raghuram Rajan kept the repurchase (repo) rate unchanged at a five-year low of 6.50 per cent in the second bi-monthly policy review of financial year 2016-17, in-line with expectations.

Repurchase or repo rate is the rate at which the RBI lends money to commercial banks in the event of any shortfall of funds.

The RBI Chief also retained the cash reserve ratio (CRR) at 4 per cent.

Rajan signalled the prospect of another cut later this year if monsoon rains dampen upward pressure on food prices.

All but one of the 44 economists polled by Reuters last week had predicted the RBI would keep rates on hold after easing them by 150 basis points since January 2015, including a 25 bps reduction at its last policy review in early April.

"The inflation surprise in the April reading makes the future trajectory of inflation somewhat more uncertain. The expectations of a normal monsoon and a reasonable spatial and temporal distribution of rainfall, along with various supply management measures and the introduction of the electronic national agriculture market (e-NAM) trading portal, should moderate unanticipated flares of food inflation," the governor said in a statement.