Charts: RBI holds repo rate at 6.5% as inflation rears its head
The inflation surprise in the April reading makes the future trajectory of inflation somewhat more uncertain, the RBI said
RBI Governor Raghuram Rajan today kept the key policy rate unchanged citing higher upside risks to 'inflation trajectory' but said the central bank will remain accommodative provided data are supportive.
Accordingly, Rajan retained the short-term lending rate at 6.5 and the cash reserve requirement of banks at 4 per cent.
"The inflation surprise in the April reading makes the future trajectory of inflation somewhat more uncertain... rising crude prices and implementation of the seventh pay commission awards being the key risks," Rajan said in the second bimonthly monetary policy for the current fiscal.
Explaining the rationale for keeping the rates unchanged, Rajan said: "Incoming data since the April policy announcement show a sharper-than-anticipated upsurge in inflationary pressures emanating from a number of food items (beyond seasonal effects), as well as a reversal in commodity prices."
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The government will release the GDP numbers for the October-December quarter of the current fiscal on Friday
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ICRA principal economist Aditi Nayar said a deeper disinflation in primary food articles helped to cushion the impact of the sharp rise in core inflation, which reached a 27-month high of 5.1 percent in January