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Highlights: RBI quarterly policy review

The Reserve Bank of India (RBI) on Friday raised the cash reserve ratio for banks by a higher-than-forecast 75 basis points but, as expected, left key interest rates unchanged.

business Updated: Jan 29, 2010 13:20 IST

The Reserve Bank of India (RBI) on Friday raised the cash reserve ratio for banks by a higher-than-forecast 75 basis points but, as expected, left key interest rates unchanged.

The Reserve Bank of India raised its forecasts for inflation and economic growth.

Following are highlights from the quarterly policy review:

Policy stance:

*Raises cash reserve ratio (CRR) by 75 basis points, in two phases, to 5.75 per cent

*Repo rate unchanged at 4.75 per cent

*Reverse Repo rate unchanged at 3.25 per cent

*CRR to be lifted by 50 basis points effective Feb 13, further 25 basis points from Feb 27

*Bank rate, used to price long term loans, unchanged at 6 per cent.

*Stance of monetary policy for the remainder of 2009/10 will be to anchor inflation expectations and keep a vigil on trends in inflation, and be prepared to respond swiftly and effectively through policy adjustments as warranted.

*Actively manage liquidity to ensure that credit demands of productive sectors are adequately met consistent with price stability.

Growth:

*Raises baseline projection for GDP growth in 2009/10 to 7.5 per cent from its earlier projection of 6.0 per cent.

*Preliminary assessment is that current growth rate will be sustained in 2010/11.

Inflation:

*Baseline projection for WPI inflation for end March 2010 raised to 8.5 per cent from earlier projection of 6.5 per cent Moderation in inflation to depend on various factors, including measures taken and to be taken by the Reserve Bank of India as part a part of the normalisation process.

*Inflation risk looms larger when viewed in the context of global price movements.

*Inflation should start to moderate from July, assuming normal monsoon and steady global oil prices.