Mumbai, October 27: The RBI on Tuesday raised statutory liquidity ratio (SLR), the portion of deposits that banks are required to keep in government securities, by 100 basis points to 25%, while keeping other key rates unchanged.
The decision to raise SLR, in the second quarterly review of the credit policy, is aimed at reducing liquidity and fighting the inflationary expectations, which has started building up, especially in the case of food items.
The CRR, Repo and Reverse Repo rates remain unchanged at 5%, 4.75% and 3.25% respectively.
GDP to grow at 6%
The central bank has retained its growth projection for the country’s economy at 6% for the current fiscal but significantly raised its expectations on the annual inflation rate to 6.5% by the end of March.
“The baseline projection for gross domestic product (GDP) growth for 2009-10 is placed at 6% with an upside bias,” Reserve Bank of India (RBI) Governor D Subbarao said while reviewing the monetary policy for this fiscal.
Inflation at 6.5% by March
“Keeping in view the global trend in commodity prices and the domestic demand-supply balance, the baseline projection for wholesale price index (WPI) inflation at end-March 2010 is placed at 6.5% with an upside bias.”
Earlier, the central bank had projected the annual inflation rate at 5% at the end of this fiscal.
“As always, the Reserve Bank will endeavour to ensure price stability and anchor inflation expectations,” Subbarao told the chief executives of commercial banks during the half-yearly review of the monetary policy.
“The conduct of monetary policy will continue to condition and contain the perception of inflation in the range of 4-4.5%. This will be in line with the medium-term objective of 3% inflation consistent with India’s broader integration with the global economy.”
Subbarao said the Reserve Bank was mindful of its fundamental commitment to price stability and would continue to monitor the situation in its entirety and take measures as warranted swiftly and effectively.
On the overall condition of the economy, the apex bank opined that the economy has begun to stabilise despite falling exports and poor monsoon.
However, the growth in export and services sector growth is still below trend, although industrial performance has improved markedly.
Banks should expand credit
The central bank, in its credit policy, has once gain asked banks to loosen their purse strings and encourage credit expansion as credit growth still remains sluggish. Adding that transmission of lower policy rates to the credit market is materialising with a lag RBI also proposes to allow rupee futures contracts in euro, yen and sterling, while stressing the critical need to lower govt borrowing to help sustain moderate rate regime.
—Agencies