RBI keeps interest rates on hold; says Budget 2016 key to more easing

RBI governor Raghuram Rajan kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.75 per cent in its sixth bi-monthly monetary policy statement of 2015-16.

The cash reserve ratio (CRR) of scheduled banks was also left unchanged at 4.0 per cent of net demand and time liability (NDTL).

The central bank will continue to provide liquidity under overnight repos at 0.25 per cent of bankwise NDTL at the LAF repo rate and liquidity under 14-day term repos as well as longer term repos of up to 0.75 per cent of NDTL of the banking system through auctions.

RBI will continue with daily variable rate repos and reverse repos to smooth liquidity.

Consequently, the reverse repo rate under the LAF now remains unchanged at 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 7.75 per cent.

Having cut the policy repo rate by 125 basis points in 2015, RBI Governor Raghuram Rajan warned on Friday against straying from the path of fiscal consolidation or relaxing the fight against inflation.

Rajan, in his statement on Tuesday, said the central bank would stay "accommodative" but would look forward to the government's budget on February 29, saying it needed to be one that supports growth and controls spending.

How the government implements a planned 24 per cent pay hike in salaries and pensions for some 10 million current and former government employees will also be key in determining the path of inflation, he noted.

"The Reserve Bank continues to be accommodative even as it leaves the policy rate unchanged in this review, while awaiting further data on the development of inflation," Rajan said in his statement.

"Structural reforms in the forthcoming Union Budget that boost growth while controlling spending will create more space for monetary policy to support growth," added Rajan.

(With inputs from Reuters)