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India maintains key rate at 5-year low

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Staff writer ▼ | June 7, 2016
India's central bank maintained its key interest rate unchanged at a 5-year low but suggested that monetary policy stance remains accommodative.
India's central bank
Asia   The repo rate is now at the lowest since early 2011
The Reserve Bank of India decided to keep its repo rate unchanged at 6.50 percent after lowering it by 25 basis points at the April meeting. The repo rate is now at the lowest since early 2011. Consequently, the reverse repo rate remained at 6.00 percent.

At the previous meeting, the bank had narrowed the policy rate corridor to 50 basis points from 100 basis points. The bank has lowered the repo rate by 150 basis points since January 2015. The cash reserve ratio was left unchanged at 4 percent today, in line with economists' expectations.

The Reserve Bank will stay on hold, but the stance of monetary policy remains accommodative, Governor Raghuram Rajan, said.

Rajan said the bank will monitor macroeconomic and financial developments for any further scope for policy action. More monetary transmission to support the revival of growth continues to be critical.

Shilan Shah, an India economist at Capital Economics, said the scope for further loosening is very limited as the bank faces a difficult task in meeting its inflation target of 5 percent for March 2017. The economist said the repo rate will remain on hold at 6.50 percent for the rest of 2016 and 2017.

The bank also left its growth and inflation projections unchanged at its second bi-monthly monetary policy meeting.