The Reserve Bank of India (RBI) in its April-June quarter monetary policy review released on 31 July 2012 left the key policy rates unchanged. The repo rate - the rate at which banks borrow from RBI - thus remained unchanged at 8 percent while the reverse repo rate – the rate at which, the banks lend to RBI – remained stable at 7 percent. Cash Reserve Ratio (CRR) - the amount of total deposits that banks are required to keep with the central bank - also remained unchanged at 4.75.
The statutory liquidity ratio (SLR) - the percentage of total deposits that banks need to invest in the government bonds was changed to 23 percent from the erstwhile 24 percent. The cut in SLR is broadly aimed at enhancing the liquidity in the system to ensure free flow of credit growth.
RBI had last cut the policy rates by 50 bps in its annual monetary policy announced on 17 April 2012. The bank decision had come after three years of stringent monetary policy.
With the overall inflation continuing to be above the RBI’s comfort level, the central bank raised the baseline projection of WPI based inflation to 7 percent for March 2013 as against the earlier projection of 6.50 percent.
RBI also cut its economic growth outlook for the fiscal year 2012-13 to 6.5 percent, from the earlier projection of 7.3 percent made during the annual monetary policy review in April 2012.
RBI is presently facing a tremendous pressure from different quarters of economy to revive the sluggish economy. Critics have even blamed RBI of being ineffective in reversing the pessimistic environment of domestic economy. The RBI, on the contrary, has been of the view that until the inflation does not come under its comfort level it can not take any call on policy rate cut. According to the Wholesale Price Inflation (WPI) data released by the Ministry of Commerce and Industry on 16 July 2012, India’s headline inflation in the month of June 2012 slowed to 7.25 percent.
Highlights of the RBI Quarterly Monetary Policy Review:
- Repo rate - the rate at which banks borrow from RBI remained unchanged at 8 percent.
- Reverse repo rate – the rate at which, the banks lend to RBI – kept unchanged at 7 percent.
- CRR - the amount of total deposits that banks are required to keep with the central bank - also remained unchanged at 4.75
- SLR was changed to 23 percent from the erstwhile 24 percent
- Projection for WPI based inflation for March 2013 raised to 7 percent
- Economic growth outlook for the fiscal year 2012-13 cut to 6.5 percent
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