Mumbai, December 16: In a move to inject liquidity in the market,
The Reserve Bank of India (RBI), in its Mid-Quarter Monetary policy
Review, today decided to reduce the statutory liquidity ratio (SLR)
of scheduled commercial banks (SCBs) from 25 per cent of their NDTL
to 24 per cent with effect from December 18.
The RBI also observed that GDP growth of 8.9 per cent in Q2
of 2010-11 suggests that domestic momentum remains strong.
Agricultural growth has recovered on the back of a good monsoon, it
said.
After flagging during August-September, the index of
industrial production (IIP) grew by over 10 per cent in October
2010. The central bank has announced that it would retain the repo
rate at 6.25 per cent and the reverse repo rate at 5.25 per cent
under the Reserve Bank’s liquidity adjustment facility (LAF).
It has also retained the cash reserve ratio (CRR) at 6.0 per
cent of net demand and time liabilities (NDTL) of scheduled banks.
RBI will also purchase government securities for Rs 48,000
crore in next one month to pump liquidity into the market.
While the overall liquidity in the system has remained in
deficit consistent with the policy stance, the extent of tightness
has been beyond the comfort level of the Reserve Bank.
This has been mainly due to persistence of large government
cash balances, which have averaged Rs 84,000 crore since the second
Quarter Review of November, mirroring in the average net LAF repo
amount of Rs 1,01,000 crore.
In addition, the liquidity deficit has been accentuated by
structural factors such as significantly above-trend currency
expansion and relatively sluggish growth in bank deposits even as
the credit growth accelerated in 2010-11. The underlying growth
momentum of the Indian economy remains strong.
Even as inflation has moderated, it remains significantly
above the comfort level of the Reserve Bank. Moreover, risks to
inflation remain on the upside, both from domestic demand and higher
global commodity prices.