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RBI policy move came on expected lines: Kotak MF

Improving systemic liquidity and managing inflation are now the key policy objectives driving the central banker’s decision

October 30, 2013 9:46 IST | India Infoline News Service
The RBI (Reserve Bank of India) in its Second-Quarter Review of Monetary Policy 2013-14 today hiked the repo rate by 25 bps (basis points) to 7.75%. The central bank kept the CRR (cash reserve ratio) unchanged at 4%. 

The repo rate is the rate at which banks borrow from RBI and one basis point is equivalent to 0.01%. 

RBI Governor Raghuram Rajan, in his second policy review, has cut MSF (marginal standing facility) rate to 25 bps to 8.75%.
MSF rate is an overnight borrowing rate for banks, which eases the cost of funds for lenders, fuelling credit growth.

The central bank expects GDP at 5% in FY13-14 and CPI to remain at or above 9%.

Commenting on RBI policy, Lakshmi Iyer, Sr Vice President and Head, Fixed Income, Kotak Mutual Fund, said: The policy move by RBI came on expected lines and indicated a return to the normalcy of the pre-June 2013 period.  It is evident from the stance that improving systemic liquidity and managing inflation are now the key policy objectives driving the central banker’s decision. This could see the yield curve flattening further, going ahead. Having said that, despite a good kharif season, the money velocity in the agri-sector may be imposing a high price floor for the agri commodities. As a result, the inflation may not moderate in a hurry and may require further policy measures going ahead”.



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