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Jul 31, 2012, 12.28 PM IST
The Reserve Bank of India (RBI) in its April-June quarter monetary policy on Tuesday left the key policy rates unchanged. However, it has cut the statutory liquidity ratio to 23% from 24% earlier.
The Reserve Bank of India (RBI) in its April-June quarter monetary policy on Tuesday left the key policy rate unchanged. However, it cut the statutory liquidity ratio (SLR) to 23% from 24% earlier. This policy action was by and large in-line with CNBC-TV18 poll. Now, the repo rate or the rate at which banks borrow from RBI remained at 8% while the reverse repo rate at which, the banks lend to RBI stood at 7%.
SLR is the percentage of total deposits that lenders need to invest in the government bonds. The reduction is aimed at ensuring free flow of credit growth through enough liquidity in the system.
Cash Reserve Ratio or CRR is the portion of total deposits that banks are required to keep with the central bank also remained unchanged.
"Keeping in view the slowdown in growth, the Reserve Bank frontloaded
After a gap of nearly three years, RBI had last cut policy rate by 50 bps in annual monetary policy announced on April 17.
Meanwhile, the central bank raised the baseline projection of WPI based inflation to 7% for March, 2013 as against the earlier projection of 6.50%. This clearly suggests that RBI may not slash policy rates in a hurry unless the rate of inflation tapers down.
"The deficient and uneven monsoon performance so far will have an adverse impact on food inflation. Notwithstanding some moderation, international crude oil prices remain elevated. This, coupled with the pass-through of rupee depreciation to import prices, continues to put upward pressure on domestic fuel price inflation," RBI said in the first quarter review of the credit policy 2012-13.
The lower-than-expectated rainfall also led to a moderation of GDP growth outlook. RBI revised its growth projection to 6.5% from 7.3% as predicted in the April policy.
Interestingly, India is ranked lowest in rating among all BRIC countries. In its macroeconomic policy, RBI alerted the government of the need to revive investment climate. This can be done through policy actions like removal of bottlenecks in infrastructure sector, liberal foreign direct investment norms and so on.
"The primary focus of monetary policy remains inflation control in order
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