Highlights: RBI raises CRR to 7.5 per cent | business | Hindustan Times
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Highlights: RBI raises CRR to 7.5 per cent

business Updated: Oct 30, 2007 14:48 IST

Reuters
Highlight Story

Following are key points from the Reserve Bank of India's quarterly policy statement released on Tuesday.

Cash Reserve Ratio (CRR): The RBI raised the CRR by 50 basis points to 7.5 percent, effective Nov. 10. The CRR is the percentage of banks' deposits which they must keep as cash with the central bank.

Interest Rates

* Reverse Repo Rate: The central bank kept the reverse repo rate unchanged at 6.0 per cent. This is the rate at which the central bank borrows funds from the market. It impacts government bond yields and short-term bank deposits.

* Repo Rate: It kept the repo rate steady at 7.75 percent. This is the rate at which the central bank adds funds to the money market.

* Bank Rate: It kept the bank rate unchanged at 6.0 percent. Banks use this rate to price their long-term loans to individuals and companies.

RBI's monetary policy stance:

To reinforce the emphasis on price stability and well-anchored inflation expectations while ensuring a monetary and interest rate environment that supports export and investment demand in the economy so as to enable continuation of the growth momentum.

To re-emphasise credit quality and orderly conditions in financial markets for securing macroeconomic and, in particular, financial stability while simultaneously pursuing greater credit penetration and financial inclusion.

To respond swiftly with all possible measures as appropriate to the evolving global and domestic situation impinging on inflation expectations, financial stability and the growth momentum.

To be in readiness to take recourse to all possible options to maintain stability and the growth momentum in the economy in view of the unusual heightened global uncertainties, and the unconventional policy responses to the developments in financial markets.

Repo/Reverse Repo actions:

- reiterates to retain option to conduct repo/reverse repo auctions at a fixed rate or at variable rates as circumstances warrant.

- reiterates to retain the option to conduct overnight or longer term repo/reverse repo depending on market conditions and other relevant factors.

Economy

* GDP Growth: The central bank kept the GDP forecast for 2007/08 at 8.5 percent.

"Recent developments indicate some slackening of momentum in the industrial and services sectors. Moreover, global uncertainties may have some moderating influence on the performance of manufacturing as well as services."

* Inflation:

The central bank said its policy endeavour would be to keep inflation close to 5 per cent in 2007/08. "At this juncture, however, rising and volatile international crude prices and the heightened levels of food prices pose risks to the inflation outlook. In view of the persisting high levels of the prices of the Indian crude basket, some pass-through to domestic petroleum product prices appears reasonable."

"The policy resolve going forward should be to consolidate the success in lowering inflation on an enduring basis so that an environment of stability prevails to nurture and protect the transition to higher growth."