Highlights: third quarter review of monetary policy

Highlights of the third quarter review of the monetary policy unveiled by the Reserve Bank of India on Tuesday.

The following are the highlights of the third quarter review of the monetary policy unveiled by the Reserve Bank of India on Tuesday:

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- Cash reserve ratio lowered by 50 basis points to 5.5% from 6%

- This step will release Rs.320 billion into the system

- Reduction can be viewed as a reinforcement of the guidance that future rate actions will be towards lowering them

- Repurchase rate, or short-term lending rate, retained at 8.5%

- Reverse repurchase rate, or short-term borrowing rate, stands at 7.5%

- Bank rate untouched at 6%

- Growth slowing due to uncertain global environment, cumulative impact of past monetary policy tightening and domestic policy uncertainties

- Projection on growth lowered to 7% from 7.6% for current fiscal

- Moderation in inflation reflects sharp deceleration in prices of seasonal food items

- Inflation in protein-based food items and non-food manufactured products still high

- Upside risks to inflation arise from global crude oil prices, rupee depreciation and slippage in fiscal deficit

- Inflation projected to moderate to 7% by March-end

- Intention to maintain interest rate environment that moderates inflation

- Policy also tuned to manage risk of falling growth

- Measures intended to manage liquidity to ensure it remains in moderate deficit, consistent with effective monetary transmission

- Forthcoming budget should concentrate on fiscal consolidation

- Administrative actions should induce investment for alleviating supply constraints in food, infrastructure

- Next mid-quarter review of monetary policy March 15

- Monetary policy for 2012-13 will be on April 17