The RBI in its second quarter monetary policy review has maintained status quo by keeping the key policy rates unchanged – Bank rate at 6%, repo rate at 4.75%, reverse repo at 3.25% and CRR at 5%. While the apex bank has refrained from withdrawal of accommodative monetary policy stance, a large number of policy measures have been undertaken directing towards withdrawal in a phased manner. The central bank has increased the SLR limit by 100bps to 25% of NDTL while keeping the HTM limit unchanged, toned down the money supply (M3) growth target (around 17% yoy from previous 18% yoy), non-food credit growth target (18.0% yoy from earlier 20.0% yoy) and raised inflation outlook (6.5% with upside bias from 5% earlier) by March, 2010. Provisioning norms for lending to commercial real estate have been tightened and further urged banks to increase provision coverage ratio (including specific and floating provision) to 70% by September, 2010. The sluggish credit demand during H1 FY10 has enabled the government to smoothly borrow over 80% of the proposed borrowings. With credit growth likely to revive in second-half of the year, the RBI has insisted banks to step up their efforts towards credit expansion while preserving credit quality. Until the previous policy review where the RBI had placed impetus on managing liquidity, it has now placed emphasis on inflation.
Main policy highlights