The
Reserve Bank of India (RBI) in its Third Quarter Monetary Policy Review today has cut the
cash reserve ratio (
CRR) by 50 bps to ease tight liquidity pressure in the banking system. RBI kept repo and reverse
repo rates unchanged at 8.5% and 7.5% respectively, despite mounting anxiety over slowdown in growth.
The
cash reserve ratio, the proportion of deposits that banks have to hold with the RBI, is a popular instrument to inject cash into the system. It now stands at 5.5%. Since 2009, this is the first time the RBI went for reducing the ratio.
Banks are borrowing more than Rs1.2 lakh crore from the RBI, which is double of what the central bank has said it is comfortable with.
The Bank Rate has been retained at 6%.
GDP growth forecast for FY12 revised downwards to 7% from 7.6% earlier.
Inflation forecast for March 2012 has been retained at 7%.
Credit growth forecast for FY12 toned down to 16% from 18% earlier.
The RBI polices going forwards would be towards easing of rates.
As per reports, commencement of interest rate cuts may take longer despite slowing growth, as the two-year-low inflation number may be short-lived due to fiscal profligacy, widening of welfare schemes, and a weak currency.
The bank hiked rates 13 times since March 2010, the most aggressive pace of monetary tightening among its global peers, to deal with the persistently high inflation, including rising prices of food items. The RBI left interest rates unchanged in December.
The next mid-quarter review of Monetary Policy for 2011-12 will be announced on Thursday, March 15, 2012.
The Monetary Policy for 2012-13 will be announced on Tuesday, April 17, 2012.