|
Mumbai: The Reserve
Bank of India (RBI) Tuesday kept key policy rates unchanged for
the second time since June saying lowering them would raise
inflationary pressure without necessarily stimulating growth.
The central bank, however, in an unexpected move, cut the
statutory liquidity ratio (SLR) by a percentage point to ease the
flow of credit to industry.
In the first quarter review of monetary policy, the RBI kept the
repo rate, the rate at which it lends to commercial banks,
unchanged at 8 percent. The reverse repo rate, the rate at which
the apex bank borrows money from commercial banks, was also kept
unchanged at 7 percent.
The Cash Reserve Ratio (CRR), the amount of funds that the
commercial banks have to keep with the RBI, stands steady at 4.75
percent.
However, the central bank cut the statutory liquidity ratio (SLR)
by a percentage point to 23 percent to ease the flow of credit to
industry. This move is expected to add Rs.60,000 crore liquidity
in the markets.
These rates determine the lending and borrowing rates by the
commercial banks to general public and corporates.
"In the current circumstances, lowering policy rates will only
aggravate inflationary impulses without necessarily stimulating
growth," the RBI said in the review.
"The primary focus of monetary policy remains inflation control in
order to secure a sustainable growth path over the medium-term.
While monetary actions over the past two years may have
contributed to the growth slowdown - an unavoidable consequence -
several other factors have played a significant role," Governor
Duvvuri Subbarao said in the policy note.
Later addressing a press conference, Subbarao said inflation
stickiness did not allow the central bank to cut the rates.
He, however, said the RBI would be "ready to act appropriately" if
and when necessary.
Core inflation declined to five-month low of 7.25 percent in June
as compared to 7.55 percent in the previous month. But it remains
much above the RBI's comfort level of 4-5 percent.
This is the second consecutive policy review when the RBI has left
key policy rates unchanged. In the mid-quarter review announced
June 18, the RBI had left key policy rates unchanged after cutting
the rates by 50 basis points in April.
The next mid-quarter review of monetary policy for 2012-13 will be
announced Sept 17, 2012.
Reacting on the RBI policy, Kaushik Basu, outgoing chief economic
advisor, said the central bank's move was in a right direction.
"RBI has said pause. RBI has made a right move and the lowering of
SLR is a very important small move. It will give right
indication."
The central bank said macroeconomic conditions have deteriorated
since it announced the monetary policy statement in April when it
lowered the rates.
"Much of the global economy is in a synchronised slowdown, having
lost the upward momentum seen in the early months of the year,"
the RBI said.
The RBI has lowered the growth projection for the current
financial year to 6.5 percent, sharply down from 7.3 percent
pegged in April.
The country's gross domestic product expanded by 5.3 percent in
the quarter ended March, the weakest in 9 years.
|
Comments
|
Quick links