Reserve Bank of India (RBI) Governor Raghuram Rajan in his last monetary policy review has kept the policy rate unchanged at 6.50 per cent, even as inflation has hit a near two-year high and continues to be above the comfort zone.
In fact, Rajan also said there was upside risk to the March 2017 inflation target of 5 per cent, but added that it has retained its GDP growth projection at 7.6 per cent for 2016-17. The RBI kept the cash reserve ratio of scheduled banks unchanged at 4 per cent of net demand and time liabilities.
Rajan is set to retire on September 4 after a three-year term.
Tuesday's meeting was also the last bi-monthly monetary policy to be decided by the central bank governor. That's because the broad-based 6-member panel may take over the job before the next review scheduled for October 4. In conjunction with naming 3 members to the Monetary Policy Committee, the government is also likely to name a successor to Rajan later this month. The government announced that it would like the RBI to focus on maintaining a retail inflation rate of 4 per cent for the next five years, based on which the new interest rate setting panel would take its monetary policy decisions going forward.
Rajan has been criticized for following a hawkish monetary policy for far too long before he started to lower rates. He has reduced the benchmark interest rate by 1.5 per cent since January last year, and has been persuading banks to fully transmit the benefit of the policy rate cut to customers.
