20.12.12

RBI maintains status quo


The Reserve Bank of India disappointed markets leaving all rates unchanged in its midterm policy review but reaffirmed its commitment to support growth in the January policy by when inflation is expected to ease further.
Several statements by the central bank in its review are being seen by the market as a definite pointer to a rate cut in January which was indicated by RBI earlier. The comments include a lower growth projection, optimism on government measures boosting sentiment and an expectation that prices would ease in coming weeks. What this means for borrowers is that banks are unlikely to reduce lending rates before January.
Pointing out that GDP growth is evolving along the baseline projection of 5.8% for 2012-13, RBI said that the government’s recent policy initiatives should boost sentiment and improve the investment climate. “Headline inflation has been below RBI’s projected levels over the past two months,” the central bank said in its policy statement as it left cash reserve ratio (CRR) unchanged at 4.25% and the repo rate at 8%. CRR is the percentage of deposits that banks are required to park with RBI while the repo rate is the rate at which banks borrow overnight funds from the central bank.
The tightness in the money market is reflected in the extent of bank borrowings from RBI which crossed Rs 1.5 lakh crore on Tuesday.

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