The wait for a softer interest rate regime for borrowers just got longer.
The Reserve Bank of India on Thursday left key interest rates unchanged in its mid-quarter review of monetary policy.
Term depositors, however, can take heart. Interest rates on term deposits are likely to remain steady for a few weeks.
The repo rate (the interest rate at which banks borrow from the RBI) remains at 8.50 per cent.
It has remained unchanged since mid-December 2011.
Inflation risks
The RBI said, “Risks to inflation have increased from the recent surge in crude oil prices, fiscal slippage and rupee depreciation.
“Besides, there continues to be significant suppressed inflation in fuel, fertiliser and power as administered prices do not fully reflect the cost of production.”
Mr Alok K Misra, Chairman and Managing Director, Bank of India, said “The mid-quarter review has given a clear indication that no further tightening is required and future actions could be on cutting down the rates.”
Liquidity to improve
The cash reserve ratio or the amount of cash that banks have to compulsorily park with the RBI also remains unchanged at 4.75 per cent of deposits. To address liquidity tightness facing banks, this ratio was cut twice (50 basis points effective January 28 and 75 basis points effective March 10).
Due to the CRR cuts, banks got a liquidity injection of Rs 80,000 crore.
“The liquidity situation has since improved and it is expected to ease further in the weeks ahead,” said the RBI in its review.