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RBI announced second Bi-Monthly Monetary Policy Statement

Jun 3, 2014 16:55 IST

The Reserve Bank of India (RBI) announced second Bi-Monthly Monetary Policy Statement on 3 June 2014. RBI in its second bi-monthly monetary policy statement has kept the policy rates unchanged.

Based on the assessment of the current and evolving macroeconomic situation the following changes has been taken
• The repo rate under the liquidity adjustment facility (LAF) unchanged at 8.0 percent.
• The cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 percent of net demand and time liabilities (NDTL).
• Reduced the statutory liquidity ratio (SLR) of scheduled commercial banks by 50 basis points from 23.0 percent to 22.5 percent of their NDTL with effect from 14 June 2014
• Introduce a special term repo facility of 0.25 percent of NDTL to compensate fully for the reduction in access to liquidity under the ECR with immediate effect.
• The policy is continued to provide liquidity under 7-day and 14-day term repos of up to 0.75 percent of NDTL of the banking system.
• The reverse repo rate under the LAF remained unchanged at 7.0 percent and the marginal standing facility (MSF) rate and the Bank Rate at 9.0 percent.

Assessment of the macroeconomic situation in India
Though inflation in India has slowed, the RBI still considers many factors that could inflame inflation such as weak rain during the June-September monsoon due to chance of the occurrence of El Nino.

India current account deficit (CAD) narrowed sharply to 1.7 percent of GDP for 2013-14 due to decline in gold imports, although other non-oil imports also contracted with the weakening of domestic demand.

In April 2014, the trade deficit narrowed sharply due to resumption of export growth after two consecutive months of decline, and the ongoing shrinking of import demand.

The foreign direct investment supported inflows of portfolio investment and external commercial borrowing, kept external financing conditions comfortable and helped add to reserves.

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