Moneycontrol Bureau
The Reserve Bank of India on Tuesday left the key policy rate unchanged in its mid quarter (December 2012) monetary policy. With this status quo in the policy action, repo rate stood at 8 percent while reverse repo was at 7 percent. Cash reserve ratio (CRR) or the portion of deposits banks keep with the RBI also remained at 4.25 percent.
A majority of analysts had expected no rate cut in RBI's mid quarter policy. However, some were anticipating a reduction in CRR for easing of liquidity situation.
Repo is the rate at which banks borrow money from the central bank. Banks lend to RBI under reverse repo window.
"In view of inflation pressures ebbing, monetary policy has to increasingly shift focus and respond to the threats to growth from this point onwards," RBI said in the policy note.
"Liquidity conditions will be managed with a view to supporting growth as stated in the second quarter review, thereby preparing the ground for further shifting the policy stance to support growth. Overall, recent inflation patterns and projections provide a basis for reinforcing our October guidance about policy easing in the fourth quarter."
In its second quarter (July-September) policy review, RBI had already hinted about a rate cut in January, 2013. Recently, the annual rate of inflation, measured by the wholesale price index (WPI) moderated to 7.24% in November as against 7.45% in October mainly due to softening of prices of vegetables, minerals and fuel.
"In striking contrast to wholesale inflation developments, retail inflation remained elevated. The new combined (rural and urban) CPI inflation increased in November, reflecting sustained food inflation pressures, particularly in respect of vegetables, cereals, pulses, oils and fats," RBI noted.
On domestic growth front, RBI observed some "indications of a modest firming up of activity" in October-December quarter. GDP growth in Q2 of 2012-13 at 5.3% was marginally lower than 5.5% in Q1. The finance ministry on Monday said that it had expected GDP growth of between 5.7% and 5.9% for 2012-13, which is lower than 7.6% budgeted. However, the latest figure is higher 5.4% attained in H1, FY13.
"Industrial activity rose sharply in October but this is, in large part, due to a low base and festival-related demand which propelled the growth of both consumer durables and non-durables into double digits. Significantly, capital goods production recorded a growth of 7.5 percent after 13 successive months of decline," RBI said.
The recent policy initiatives by the government, according to RBI should help boost business sentiment and improve the investment climate.
Later, Montek Singh Ahluwalia, deputy chairman, planning commission emphasised the need to take active steps for policy implementations.
"Economy is begining to turn around. We need policies that aid revival of investment sentiments. Growth is no more binding to funds," he told reporters in New Delhi. RBI's policy rate changes at a glance
| Date | Reverse Repo | Repo | SLR | CRR |
| December 18 | 7 | 8 | 23 | 4.25(unchanged) |
| October 30, 2012 | 7 | 8 | 23 | 4.25 (-25) |
| September 22, 2012 | 7 | 8 | 23 | 4.50 (-25) |
| August 11, 2012 | 7 | 8 | 23 | 4.75 |
| April 17, 2012 | 7 (-50) | 8 (-50) | 24 | 4.75 |
| March 10, 2012 | 7.50 | 8.50 | 24 | 4.75 (-75) |
| January 28, 2012 | 7.50 | 8.50 | 5.50 (-50) | |
| October 25, 2011 | 7.50 (25) | 8.50 (25) | 24 | 6 |
| September 16, 2011 | 7.25 (25) | 8.25 (25) | 24 | 6 |
| July 26, 2011 | 7.00 (50) | 8.00 (50) | 24 | 6 |
| June 16, 2011 | 6.50 (25) | 7.50 (25) | 24 | 6 |
| May 03, 2011 | 6.25 (50) | 7.25 (50) | 24 | 6 |
| March 17, 2011 | 5.75 (25) | 6.75 (25) | 24 | 6 |
| January 25, 2011 | 25 (5.50) | 25 (6.50) |
*The bracketed figures show repo, reverse repo and CRR in percentage term.
saikat.das@network18online.com
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