RBI keeps Policy Rate unchanged, CRR cut by 25bps

The Reserve Bank of India (RBI) has come out with its Second-Quarter Monetary Policy review,  albeit the policy stance for this meet is in line with our as well as general consensus. Again, RBI kept Policy Rate unchanged and cut CRR by 25bps.  The following are the policy measures;

Repo Rate

Retained Repo rate under the liquidity adjustment facility (LAF) unchanged at 8.0 per cent.

Reverse Repo Rate

The reverse repo rate under the LAF, determined with a spread of 100 basis points below the repo rate, stands at 7.0 per cent.

Marginal Standing Facility (MSF) Rate

The MSF rate, determined with a spread of 100 basis points above the repo rate, stands at 9.0 per cent. 

Bank Rate

The Bank Rate stands at 9.0 per cent. 

Cash Reserve Ratio

The cash reserve ratio (CRR) of scheduled banks has been reduced by 25bps to 4.25 per cent of their net demand and time liabilities (NDTL). 

Inflation Projection

The baseline projection for headline WPI inflation for March 2013 is raised to 7.5 per cent from 7.0 per cent indicated in July.

GDP Projection

The baseline projection of GDP growth for 2012-13 is revised downwards to 5.8 per cent from 6.5 per cent. 

 Guidance

The reduction in the CRR is intended to pre-empt a prospective tightening of liquidity conditions, thereby keeping liquidity comfortable to support growth. It anticipates the projected inflation trajectory which indicates a rise in inflation before easing in the last quarter. While risks to this trajectory remain, the baseline scenario suggests a reasonable likelihood of further policy easing in the fourth quarter of 2012-13. The policy guidance will, however, be conditioned by the evolving growth-inflation dynamic.