RBI cuts CRR by 50 bps; Repo rate unchanged
The Reserve Bank of India (RBI) on Tuesday left its main lending rate unchanged as it continues to battle inflation demons even as concerns are growing over a steeper-than-anticipated deceleration in economic growth. However, the Indian central bank slashed the cash reserve ratio (CRR) by half a percentage point to soften the tight liquidity conditions in the banking system. The CRR now stands reduced at 5.5%. The RBI has left the repo rate unchanged at 8.5% since late October after raising it 13 times since March 2010. The reverse repo rate stands steady at 7.5%. The marginal standing facility rate is at 9.5%. The bank rate also remains static at 6%.
The CRR cut announced today would be effective from the fortnight beginning January 28. As a result of the reduction in the CRR, around Rs. 320bn of primary liquidity will be injected into the banking system, the RBI said in a statement. "In reducing the CRR, the central bank has attempted to address the structural pressures on liquidity in a way that is not inconsistent with the prevailing monetary stance," the central bank added. This policy review is set in the context of a highly uncertain global environment and a delicately poised domestic balance between growth and inflation, the RBI said in a statement. Since the Second Quarter Review of Monetary Policy in October 2011, there have been significant changes in the global scenario. On the one hand, concerns over the sustainability of sovereign debt problem in the euro area have intensified. On the other, there are modest signs of improvement in the US. In the emerging and developing economies, growth has been moderating, reflecting the sluggishness in the advanced economies and the impact of earlier monetary tightening. Overall, notwithstanding the signs of recovery in the US, global growth prospects have weakened since the Second Quarter Review in October...Read More
D. Subbarao's statement on Q3 Monetary Policy
RBI Macroeconomic and Monetary Developments for Q3
Risks to RBI's Monetary Policy
Basis of RBI's policy stance in Q3 review
CRR cut to address structural pressures on liquidity
RBI lowers FY12 GDP growth forecast to 7%
The Reserve Bank of India (RBI) on Tuesday scaled down its GDP growth projection for the ongoing financial year citing the sharp deceleration in domestic industrial activity and risks from the global downturn. The baseline projection of GDP growth for FY12 is revised downwards from 7.6% to 7%, the RBI said today in a statement. In the Second-Quarter Review of October 2011, the RBI had projected a GDP growth of 7.6% for FY12, though with significant downside risks. In the Mid Quarter Review of December 2011, the central bank indicated that some of these risks were indeed materialising such as increase in global uncertainty, weak industrial growth, slowdown in investment activity and deceleration in the resource flow to the commercial sector. Consequently, while agricultural prospects look buoyant, industrial production has decelerated, the RBI said today. The slowdown in industrial production will also impact service sector growth, it warned. Further, weaker global growth will also have an adverse impact on the Indian economy, it said.
RBI retains inflation forecast at 7%
RBI cuts non-food credit growth estimate to 16%
Rupee, administered energy prices could spur inflation
Tough to predict future of OMOs: RBI chief
It is difficult to predict the timing and size of the open-market operations (OMO) over the coming few weeks, Reserve Bank of India (RBI) Governor Dr. Duvvuri Subbarao said in a conference call with analysts. The central bank's OMOs have limitations beyond a point, Dr. Subbarao said, adding that the RBI will need to assess how liquidity is behaving before taking a view on future OMOs. The OMOs remain on the table to deal with liquidity shortages, Deputy RBI Governor, Subir Gokarn was quoted as saying in the same conference call. They were referring to the central bank’s intervention in the government bond market to ease liquidity crunch. India’s 10-year bonds tumbled yesterday on speculation that the RBI could stop buyback of debt after announcing a wider-than-expected 50 basis point reduction in the cash reserve ratio (CRR). The yield on the 8.79% note due in November 2021 jumped to 8.35% after Dr. Subbarao said that it was too early for the central bank to decide whether or not to continue the OMOs. The RBI would look at the outcome of the CRR cut and demand before deciding on OMOs, Subbarao said yesterday. The RBI Governor said yesterday that the central bank would watch how the cut in CRR affects liquidity over the next one month before buying back any government debt through the OMOs. Any interest rate cuts in the future would depend on the movement in the Indian rupee, size of the fiscal deficit and the trajectory of inflation, Subbarao said. The RBI chief also said today that the Government needs to focus on expenditure compression in lowering the fiscal deficit.
Also read:
India's 10-year yield spikes on OMO uncertainty
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