The Reserve Bank of India,RBI, has released the Mid-Quarter Review of Monetary Policy 2012-13.
Much to the relief of bankers, the RBI has reduced the Cash Reserve Ratio – CRR by 25 basis points from 4.75 per cent to 4.50 per cent. CRR is the amount of money that banks have to keep with RBI.
The RBI has said this cut in CRR will bring in additional liquidity of 170 billion in the banking system. CRR cut would be effective from September 22. RBI has kept all the other key policy rates unchanged.
The policy repo rate under the Liquidity Adjustment Facility – LAF remains at 8 per cent. Consequently, the reverse repo rate will remain unchanged at 7.0 per cent.
Repo rate is the rate at which RBI lends money to banks while the Reverse Repo rate is the rate at which RBI borrows money from banks. The Marginal Standing Facility – MSF rate and the Bank Rate remains at 9.0 per cent.
Lauding the government’s economic reforms, RBI has said that Government has undertaken long anticipated measures towards fiscal consolidation which should contribute to both greater capital inflows and in the long run towards higher productivity, particularly in the food supply chain.
It adds that although domestic growth continues to be weak amidst a negative investment climate; the recent reform measures have started to reverse sentiments.
But maintaining that inflationary pressures, both at wholesale and retail levels, are still strong and persistent; RBI has said that the primary focus of monetary policy remains the containment of inflation and anchoring of inflation expectations.
RBI adds that while the recent upward revision in diesel prices and rationalisation of subsidy for LPG is a significant achievement, in the short-term, it will lead to pressure on headline inflation.
Over the medium-term, however, it will strengthen macro-economic fundamentals. RBI has assured that as government action begins to stimulate growth, monetary policy will reinforce the positive impact of these actions while maintaining its focus on inflation management.
RBI has said that economic growth has remained sluggish while money supply, bank credit and deposits have moderated. On the rainfall front, RBI has said late rains have augmented storage in reservoirs which should improve prospects for the rabi crop, mitigating to some extent the concerns about agricultural prospects.
Kharif sowing however is still below normal. RBI has further said that global economic situation is also not good; exerting pressure on global asset prices, and particularly, commodity prices.
Meanwhile, cheering the government’s reform move, the Bombay Stock Exchange has recorded a jump of more than 1 percent in the opening trade.
State Bank of India – SBI Chairman Pratip Chaudhuri has welcomed the policy decisions saying that RBI has given a clear signal that they are willing to respond and that they have taken note of the signs of deceleration in economy.
