Reserve Bank Governor Raghuram Rajan on Tuesday held repo rate unchanged at 7.5 per cent, as expected. A status quo on interest rate was anticipated because Dr Rajan had earlier this year announced back-to-back repo cuts, both times outside the policy meetings.
"What we are waiting for is more information about the effect of weather disturbances and more information on the likelihood of reasonable monsoons... Very little transmission of the rate cut we effected at the beginning of this year and in March has taken place," Dr Rajan said.
Another key ratio, the CRR or cash reserve ratio, which is the amount of deposits lenders must keep with the RBI, was also left unchanged at 4 per cent. This means interest rates on home and auto loans are unlikely to come down immediately, analysts said.
"Dr Rajan has remained conservative... There's nothing path breaking in the policy," said Moses Harding, group CEO of SREI Infra.
Big banks, including India's largest state-run lender SBI and private sector lender ICICI Bank, have not slashed interest rates despite the central bank cutting repo rate twice this year. As a result, lending rates continue to remain in double digits, hampering credit offtake and growth, analysts say.
Dr Rajan, however said that while the RBI remained status quo on policy, it is not status quo on measures needed to take the economy on higher growth path. Banks will, overtime, be forced to lower rates because of competitive forces in the market, he added.
The Sensex, which had jumped nearly 550 points in last two sessions, dropped over 100 points after the RBI policy announcement.
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