Published: January 24, 2012 12:12 IST | Updated: January 24, 2012 16:11 IST
PTI
Reserve Bank of India Governor D. Subbarao. File photo: Vivek Bendre
Reserve Bank of India on Tuesday injected Rs. 32,000 crore into the system by lowering the Cash Reserve Ratio (CRR) by half-a-percentage point but kept the short-term lending rate (repo) unchanged in view of persisting inflationary concerns.
“Based on the current inflation trajectory, including consideration of suppressed inflation, it is premature to begin reducing the policy rate,” RBI Governor D.Subbarao said while unveiling the third quarterly monetary policy review.
With additional liquidity by CRR cut, there is a possibility that banks may reduce the interest rate to attract borrowers.
Projecting a lower growth of 7 per cent for 2011-12, the Reserve Bank said the policy actions are meant to “mitigate downside risks to growth” and anchor inflationary expectations.
The CRR, the amount of deposits the banks are required to keep with RBI in cash, has been reduced to 5.5 per cent from 6 per cent with effect from January 28, releasing Rs. 32,000 crore in the system to ease the liquidity problems. The short-term lending rate (repo) has been kept unchanged at 8.5 per cent.
The policy said through the multiplier effect, additional credit to the tune of Rs 1.6 lakh crore would be generated in the system over a period of time.
The stock market reacted positively to the policy announcement and the banking stocks, in particular, shot up.
AP adds
Cuts growth forecast
The bank’s new growth projection is a substantial cut from its October forecast of a 7.6 per cent increase in economic activity for the year ending March 2012. The downgrade reflects weakening global growth as well as domestic policy paralysis, high inflation and dwindling investment. Last fiscal year, India’s economy grew by 8.5 per cent.
“The global environment is only partly responsible for the weak industrial performance and sluggish investment activity,” the bank said in its policy statement. “Several domestic factors, the unhealthy fiscal situation, high interest rates and policy and administrative uncertainty are also playing a role.”
Reserve Bank Of India: Third Quarter Review of Monetary Policy 2011-12 - Download PDF
