RBI surprises market with 50 bps rate cut; CRR unchanged

The Reserve Bank of India (RBI) in its annual monetary policy for 2011-12 on Tuesday slashed the policy rates by 50 basis points. The repo rate at which banks borrow money from the RBI now stands at 8% from 8.50% earlier. Similarly, the reverse repo rate at which RBI borrows money from banks is now at 7% from 7.50% earlier.

April 20, 2012 / 04:58 PM IST

Moneycontrol Bureau

Finally, the rate trajectory took a southward turn. The Reserve Bank of India (RBI) in its annual monetary policy for 2012-13 on Tuesday slashed the policy rates by 50 basis points. The repo rate at which banks borrow money from the RBI now stands at 8% from 8.50% earlier. Similarly, the reverse repo rate at which RBI borrows money from banks is now at 7% from 7.50% earlier.

However, the cash reserve ratio (CRR) or the portion of deposits banks keep with the RBI, was left unchanged at 4.75%.

After hiking policy rates for 13 consecutive times between March 2010 and October 2011, the regulator took a pause to support India’s falling growth momentum. On April 21, 2009; the apex bank had last reduced its key policy rates by 25 basis points. But, it cut the CRR by 125 bps so far in 2012 to ease the tight liquidity situation.

The latest rate cut move came as a surprise as the market was expecting only 25 bps reduction in the policy rate. Many feel, RBI is now tilting twoards growth from its strict anti-inflationary stance after a series of rate cuts to stem the rising rate of inflation. Consequently, the rate of inflation eased to 6.9% in March from 10% during the fiscal year. The average inflation rate in India was 7.99% between 1969 and 2010. 

Companies were seen going slow on their expansion plans. In FY12, RBI had to revise its credit growth target from 18% to 16%. The non-food credit, the money that banks lend to individuals and companies, expanded 16.80% year-on-year to Rs 45.30 lakh crore for the fortnight ended March 23, 2012.

Following a slackening in corporate activities, India’s GDP (gross domestic product) growth projection was revised from 7.60% to 7% in FY12.

RBI's policy rate rise at a glance

Date

Reverse Repo

Repo

April 17, 2012

50 (7)

50 (8)

Dec16, 2011; Jan 24, 2012; March 15, 2012

All unchanged

(7.50)

All unchanged

(8.50)

October 25, 2011

25 (7.50)

25 (8.50)

September 16, 2011

25 (7.25)

25 (8.25)

July 26, 2011

50 (7.00)

50 (8.00) *

June 16, 2011

25 (6.50)

25 (7.50)

May 03, 2011

 50 (6.25)

50 (7.25)

March 17, 2011

25 (5.75)*

25 (6.75)

January 25, 2011

25  (5.50)

25  (6.50)

November 02, 2010

25  (5.25)

25  (6.25)

September 02, 2010

50  (4.75)

25  (6.00)

August 27, 2010

50  (4.25)

25  (5.75)

August 02, 2010

25  (4.00)

25  (5.50)

April 20, 2010

25  (3.75)

25  (5.25)

March 19, 2010

25  (3.50)

25  (5.00)

January 29, 2010

Unchanged (3.25)

Unchanged

(4.75)

October 27, 2009

Unchanged (3.25)

Unchanged (4.75)

July 28, 2009

Unchanged

(3.25)

Unchanged

(4.75)

April 21, 2009

25 (3.25)

25 (4.75)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*The bracketed figures show Reverse repo and repo in percentage term.

saikat.das@network18online.com

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