After meeting in financial capital
The move was widely expected by economists, who said the RBI needed time to assess whether a drought situation could emerge and send food prices soaring — despite a recent easing in the consumer price index.
"With some continuing uncertainty about the path of the monsoon, it would be premature to conclude that future food inflation, and its spill-over to broader inflation, can be discounted," said RBI chief
Rajan has raised the key repo rate three times to clamp down on rising prices since he came to the helm in September, gaining a reputation for hawkishness on inflation, even with the economy growing at sub-five per cent for a second straight year.
Businesses have been clamouring for monetary easing, saying the current high repo rate discourages investment needed to help
Although June's consumer price index, closely watched by the central bank, rose by its slowest pace since
Indian farmers rely for irrigation largely on the annual rains, which are more than 20 per cent below average so far this year — meaning the CPI is likely to rise again later in the year.
The central bank on Tuesday cut the statutory liquidity ratio, the amount banks must keep in government securities, by 50 basis points to 22 per cent, to free up funds for the banking system and spur economic activity.
But the cash reserve ratio -- the amount of cash deposits that banks must keep with the RBI -- was held steady at 4.0 per cent.
Rajan said upside risks to inflation included "possibly higher oil prices stemming from geo-political concerns and exchange rate movement, and strengthening growth in the face of continuing supply constraints".
To boost liquidity in the money and debt markets, the RBI also lowered the cap on the amount of debt banks can hold without marking to market to 24 perc ent from 24.5 per cent, with effect from the fortnight beginning
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