Key takeaways from RBI's monetary policy review

MUMBAI: As widely expected, the Reserve Bank of India governor Raghuram Rajan kept key rates – repo, reverse repo and the cash reserve ratio – unchanged in its second bi-monthly monetary policy review for the year 2016-17. The central bank, once again guided that it remained committed to an accommodative stance despite worries of inflation inching up higher.

Here are key takeaways from RBIs monetary policy review:

RBI kept the repo rate unchanged at 6.5% and CRR at 4%. RBI again reiterated it will continue to provide liquidity as required but progressively lowering the average ex ante liquidity deficit in the system

RBIs concern on inflation stood out as the central banker said the inflation surprise in the April reading has made the future trajectory of inflation somewhat more uncertain. But, it kept the January 2017 target of CPI unchanged.

Despite rising inflation pressures RBI Governor said the central bank continues to maintain an accommodative stance. RBI said it will monitor financial developments to ascertain scope for policy action. Importantly RBI also said that more monetary transmission to support revival of growth continued to be critical.

RBI is also set to review implementation of Marginal Cost of Lending Rate (MCLR) framework by banks. RBI Governor Raghuram pointed out that rate transmission by banks continues to remain work in progress.

RBI Governor also said that the approval for setting up a stressed asset fund has come in and the central has given its views to the government. Banks may set up 2 Stressed Asset Funds instead of one Special Situations Fund.