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India's Central Bank Eases Money Supply but Rates Unchanged

  •   Tue, Oct 30 2012 11:58:52 AM

Mumbai, Oct 30 (IANS): The Reserve Bank of India (RBI) Tuesday cut a key policy ratio by 25 basis points to release Rs.175 billion into the system for lending, but left policy rates unchanged, hoping this will push growth but also keep inflation under check.

The cash reserve ratio, or the money against deposits which commercial banks have to retain in the form of liquid assets such as cash, has been cut to 4.25 percent from 4.5 percent at present. All the other policy rates and reserve ratios were, however, kept unchanged.

These changes were effected during the second quarter review of the monetary policy for this fiscal conducted by RBI Governor D. Subbarao at the central bank's headquarters at Mint Street in downtown Mumbai.

"The reduction in the cash reserve ration is intended to pre-empt a prospective tightening of liquidity conditions, thereby keeping liquidity comfortable to support growth," Subbarao said, explaining the rationale of policy action Tuesday.

"The persistence of inflationary pressures even as growth has moderated, remains a key challenge. In this respect, India is an exception to the global trend, which underscores the role of domestic structural factors."

The market sentiments, accordingly, were hit and the sensitive index (Sensex) of the Bombay Stock Exchange fell to 18,506.83 points, immediately after the policy review, to log an intra-day loss of 128.99 points, ot 0.69 percent.

A day before the review, the central bank had said in its formal assessment of macro-economic and monetary developments for the July-September quarter, that inflation was likely to persist for some time.

It revised upward its projection for inflation based on wholesale prices to 7.7 percent from the earlier estimate of 7.3 percent and lowered the forecast of country's economic growth for this fiscal to 5.7 percent from the 6.5 percent earlier.

The policy review also came against the backdrop of Finance Minister P. Chidambaram pledging to nearly halve India's fiscal deficit by March 2017, while hoping the central bank would ease monetary policy taking into account the recent reform measures to help economic growth.

Following are the new policy rates and reserve ratios:

Bank rate: 9 percent

Repurchase Rate: 8 percent

Reverse Repurchase Rate: 7 percent

Marginal Standing Facility Rate: 9 percent

Cash Reserve Ratio: 4.25 percent

Statutory Liquidity Ratio: 23 percent
  

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Comment on this article

  • Horny Manatee, India

    Tue, Oct 30 2012

    If wishes were horses even beggars would ride. Those who are waiting for a RBI rate cut, dream on. Even if they did cut, it will be marginal, likely to be reverted in the near future. Inflationary pressures are too high. Unfortunately markets do not work according to people’s fantasies.

    Mangalore real estate is toast. If I had an investment property in the city I'd hit the bid button yesterday.

    2014 is the year of doom for house/apartment prices in Mangalore. Flats are overpriced by a factor of 3. Get rid of it now. Let another sucker fall for it. Make sure you don’t hold the poison when the music stops.

    What happened to Burj Al Arab back in 2008-09 is what most likely going to happen to Planet SKS in 2014. There is something to be said about the co-incidence of opening of sky scrapers and the eclipsing economic bust. Look at Petronas Towers and the South East Asian crisis back in 1997, The Shard in London and 2012, Sears Tower and the great depression in the 1930’s. The relationship is uncanny and unscientific yet one cannot ignore it.

    T3 developers in Mangalore are flogging fixed deposit bonds at 14% interest rate whereas RBI rate is below 9%. Maths doesn’t stack up. Lot of desperation in the credit markets which may be the reason for such ventures. Banks won’t lend the over-leveraged builders anymore. Don’t think there are enough Middle-eastern sheeple left any more for the builders to palm off the brick and mortar duds.

    Those who want to buy a flat, hold your plans for another 4 years. Rent until then. In other words, sit it out and squirrel away. It is going to be worth it.

    DisAgree [1] Agree [2] Reply Report Abuse


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