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RBI cuts CRR, leaves lending rate unchanged
Mumbai, January 24, 2012 (PTI): The Reserve Bank of India
Tuesday injected Rs 32,000 crore into the system by lowering the cash
reserve ratio (CRR) by half-a-percentage point but kept the short-term
lending rate unchanged in view of persisting inflationary concerns.
"Based on the current inflation trajectory, including
consideration of suppressed inflation, it is premature to begin
reducing the policy rate," RBI Governor D Subbarao said while
unveiling the third quarterly monetary policy review.
With the additional liquidity created by the CRR cut, there is
a possibility that banks may reduce the interest rate to attract
borrowers. Projecting a lower growth of 7 per cent for 2011-12, the
Reserve Bank said the policy actions are meant to "mitigate
downside risks to growth" and anchor inflationary expectations.
The CRR, the amount of deposits the banks are required to keep with
RBI in cash, has been reduced to 5.5 per cent from 6 per cent with
effect from January 28, releasing Rs 32,000 crore in the system to
ease the liquidity problems. The short-term lending rate (repo) has
been kept unchanged at 8.5 per cent. The stock market reacted
positively to the policy announcement and banking stocks, in
particular, shot up. The RBI kept the repo or the short-term lending
rate at 8.5 per cent while making it clear that any cut in it will
only happen after moderation in inflation.
The central bank expects the headline inflation to moderate to
7 per cent by March, but there are concerns over the persistently high
prices of non-food manufacturing items. On CRR cut, RBI said,
"Persistence of tight liquidity conditions could disrupt credit
flow and further exacerbate growth risks. CRR is the most effective
instrument for permanent liquidity injections." It indicated that
future rate actions could see more lowering on the front. Apart from
easing liquidity pressures, the RBI said the policy actions are aimed
at mitigating downside risks to growth and anchoring medium term
inflation expectations. |
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