RBI leaves key policy rate unchanged
The Reserve Bank of India (RBI) has left the key policy rate, the repo rate, untouched at 7.25% in its June mid-quarter monetary policy. Cash Reserve Ratio (CRR), stood at 4%. Repo is the rate at which banks borrow from the Central bank. CRR is the portion of deposits that banks are required to keep with RBI. Consequently, the Reverse Repo rate will remain at 6.25%, and the Marginal Standing Facility (MSF), rate and the Bank Rate at 8.25%.
Why no change?
While the market was expecting some cut in interest rates on account of easing inflation and low manufacturing growth, the RBI left the rates unchanged. As per experts, interest rate cuts could not be made due to shrinking difference in interest rates offered in Indian markets and Western markets, which is why the Foreign Institutional Investors in our debt market pulled off about $3 billion. Bringing the interest rates much lower at this point of time could have aggravated the situation by encouraging FII to pull out more from the debt market.