RBI keeps repo rate at 6 per cent due to inflation

Mumbai: RBI on Wednesday decided to keep its key policy rate unchanged at six per cent despite a serious slowdown in domestic growth. The RBI cited upside risk to inflation as the reason for this move. RBI also cautioned the government against any fiscal stimulus package arguing that the combined fiscal deficit of both the Centre and the states are already in the region of six per cent of the GDP and such fiscal action could undercut India’s macro-economic stability.

However, the central bank surprised market participants by slashing the statutory liquidity ratio (SLR), or the amount of bonds that banks must set aside with the central bank, by 50 basis points to 19.50 per cent from mid-October. The move is likely to infuse more liquidity into the system bolstering the ability of the banks to lend more.