Reserve Bank keeps key rates unchanged

Mumbai: The Reserve Bank Friday unexpectedly maintained status quo on the benchmark interest rate but warned that volatile and rising oil prices, and tightening of global financial conditions pose substantial risks to the growth and inflation.

The Reserve Bank of India in its fourth bi-monthly policy this fiscal changed the policy stance to 'calibrated tightening' from 'neutral' while affirming its commitment to achieving the medium-term objectives to contain price rise.

A majority of the analysts and bankers were expecting the six-member Monetary Policy Committee (MPC) to raise interest rate by at least a 0.25 per cent, while the developments over the last few days, especially the weakness in the rupee, had led to speculations that it could be even high as high as 0.50 per cent.

Soon after the announcement, the rupee breach 74 - mark against a dollar for the first time, making imports costlier and posing a threat to current account deficit (CAD).

"The MPC reiterates its commitment to achieving the medium-term target for headline inflation of 4 per cent on a durable basis," the resolution of the MPC after a three-day meet said.

The repo rate, at which the RBI lends to the system, will continue to be at 6.5 per cent, the reverse repo, at which it absorbs excess funds, will be at the same level of 6.25 per cent.

Welcoming the decision of RBI to keep rates unchanged, Economic Affairs Secretary S C Garg said the government's assessment of inflation is in line with the MPC's assessment. The MPC voted 5:1 in favour of a status quo, with only Chetan Ghate voting for a 0.25 per cent hike. More reports on P12