RBI has kept the repo rate and CRR unchanged, contrary to expectations of a cut in both. May inflation is at 10.36 compared with 10.26 in April.

RBI has thus, moved on the lines, which it has drawn in the previous policy statement. In the previous meeting, where it had cut rates by 50bps, it had indicated that, it will move after there are more steps on the fiscal side by the Government. The Government has increased petrol prices steeply. However, further fiscal initiatives are still awaited.

The crude prices have corrected in the past month, but the RBI has said that, rupee depreciation has largely set-off the impact.

On the other hand, with a view to address the liquidity issue, the RBI has stated that, it will use the OMO facility (open market operations) to actively manage liquidity. It has increased the export credit refinance facility to 50 per cent from 15 per cent earlier.

Also, it has said that, it will use any of the available measures at any point of time, should there be a situation which arises. This means that, it has kept the window open to act at any time if the situation so demands because of unforeseen circumstances.

Thus, it has not fulfilled the markets wishes of rate cut and repo cut. However, it has kept the door open on interest rates and has also said that, it will use OMOs to manage liquidity.

Hence, it once again means that it is up to the government to come up with fiscal initiatives, which will then make the RBI cut interest rates.

From the market’s perspective, this is disappointing and it will now have to wait for the government action (which has been delayed) and monsoon progress to see any sustained uptrend. Any liquidity infusion globally may also support the markets.