RBI keeps repo rate unchanged at 8%; SLR cut by 50 bps

 In line with market expectations, the Reserve Bank of India on Tuesday kept key rates unchanged. While the repo rate was maintained at 8% and reverse repo rate at 7%, the SLR was cut by 50 basis points. 

Rajan kept the policy rate unchanged at 8 per cent at the previous review on April 1 as inflation, especially of food items, hovered at over 8 per cent. Food inflation in April stood at 9.66 per cent and retail inflation at 8.59 per cent. 

Raghuram Rajan on Sunday called on Prime Minister Narendra Modi and is believed to have discussed the macro-economic situation. The bi-monthly policy review is the first after Modi assumed office on May 26. 

Finance Minister Arun Jaitley, in a Facebook posting, has stressed on reviving growth momentum and containing inflation. India's economic growth remained below the 5 per cent mark for the second year in a row at 4.7 per cent in 2013-14, although industry is hopeful of a rebound with a stable government headed by Modi.

An emerging risk on the inflation front is the likelihood of a deficient monsoon, which could lead to a surge in food inflation and affect growth adversely. 

The India Meteorological Department has indicated a 60 per cent probability of the El Nino weather phenomenon this year along with a below-normal monsoon. The RBI has increased the key repo rate three times since Rajan took over as Governor in September. 

After meeting Jaitley last week, Rajan had said fighting price increases is a priority and the central bank has always maintained a balance between the need to check inflation and prop up growth.