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Monetary Policy: RBI maintains status quo

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RBI , govt, RBI Governor

Mumbai: Reserve Bank Governor Raghuram Rajan on Tuesday kept the benchmark repo rate unchanged at a five-year low of 6.5 per cent. The decision was widely expected as retail inflation, which the RBI tracks to set interest rates, rose to 5.39 per cent in April from 4.83 per cent in March.

"The inflation surprise in the April reading makes the future trajectory of inflation somewhat more uncertain... Incoming data 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," Dr Rajan said in a statement.

Chances are that retail inflation will inch up higher because of the rally seen in global commodity prices, mainly crude oil. The implementation of the 7th Pay Commission recommendations, which will lead to higher salaries for Central government employees and pensioners, is also expected to stoke price rise.

The central bank has a target to bring retail inflation down to 5 per cent by March 2017.

Dr Rajan said the RBI will stay on hold, but the stance of monetary policy remains "accommodative", which means rate cuts down the year cannot be ruled out.

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