Mumbai, Aug 9 (KNN) In his final policy review, RBI Governor Dr Raghuram Rajan kept the repo rate unchanged at 6.50 per cent in the wake of inflation hitting a nearly two-year high.

In the Third Bi-monthly Monetary Policy Statement, 2016-17, RBI Governor kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.5 per cent and also kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liabilities (NDTL).

He said, “…we have kept rates on hold, maintaining an accommodative stance while we await developments. We are within the inflation band given to us by the Government and expect to be around 5 percent CPI inflation by March 2017, absent unforeseen eventualities.”

On the much talked about Monetary Policy Committee, the apex bank chief said, “My hope is the next monetary policy statement will be by the proposed Monetary Policy Committee (MPC).”

The committee to select outside members of the MPC has commenced the process. On the RBI’s side, the Board has selected Dr. Michael Patra to be the RBI Board nominee on the MPC. The other two members from the RBI will be the Governor and the Deputy Governor in charge of monetary policy.

“With the formation of the MPC, the Government and the RBI will have completed a fundamental institutional reform, which modernizes India’s monetary policy framework and builds a platform for strong and sustainable growth.

Some of the collateral benefits over and above low inflation will be a currency that is not depreciating constantly, higher real returns earned by savers, and lower nominal interest rates, including inflation risk premia, paid by borrowers,” he said.

“Despite easy liquidity, banks have passed past rate cuts into lending rates only modestly. Earlier, some bankers said that it was the lack of liquidity that was holding rates high, now I hear from some that it is fear of the FCNR(B) redemptions that is making them reluctant to cut rates,” he said.

The Governor further added, “I have a suspicion that some new concern will crop up once the FCNR(B) redemptions are behind us. On our side, having examined our experience with the MCLR framework, we will shortly be suggesting some revisions. However, substantial pass through will happen only as corporate credit demand picks up, and public sector banks, strengthened by clean balance sheets, compete for corporate business.”

He said that guidelines for P2P lending and for account aggregators will be announced in the next few weeks. (KNN Bureau)