After much speculation as to what the Reserve Bank of India was going to do regarding the monetary policy in its review meet today, the Central bank chose not to take any action at all.
In short, the RBI has kept the key rates unchanged at the previous levels. The statutory Liquidity Ratio (SLR) remains unchanged too.
While the repo rate, the rate at which the central bank lends cash to other banks, remains at 4.75 per cent, the reverse repo rate, it takes surplus cash from the system, stays at 3.25 per cent, the review indicated.
It is also forecasting inflation at 5 per cent and gross domestic product (GDP) growth at 6 per cent. "The Reserve Bank will maintain an accommodative monetary stance until there are robust signs of recovery," The RBI said.
Money supply growth is seen at 18 per cent, while deposit growth is seen at 19 per cent. The review added that there is scope to cut interest rates by banks.
The central bank has already cut its short-term lending rate by 425 basis points six times since October to prop-up and propel the economy towards faster growth.
It had cut reverse-repo rate by 275 basis points from December and cut down the cash reserve requirement by 400 basis points to 5 per cent.
According to the central bank, the priority is to cultivate economic growth after the severe drubbing it received at the hands of the global financial crisis. The time for growth to show positives would be around the latter part of the fiscal, said the central bank however, the stimulus measures that have already been taken are seen to be boosting demand.
While last fiscal the Indian economy grew by 6.7 per cent, in the current fiscal expectations range from 5.8 per cent to 7.1 per cent. But this is nowhere near the 9 per cent growth logged in the years before the global meltdown began to dig into the Indian economy.
Markets did not react sharply at all to the central bank’s moves. The yield on the 10-year bond remained stable on the inflationary expectations that the RBI revealed. The rupee also held fort steadfast, while stocks were trading almost flat, although in negative terrain.
Highlights:
Cash Reserve Ratio at 5%
Bank Rate 6%
Hikes FY10 inflation estimate to 5% from 4%
Policy stance emphasis is to push growth, curb prices
Rates may get hiked if inflation increases
Despite high govt borrowing, ensure private sector gets funds
Ensure abundant liquidity to supply FY10 borrowing
Scope exists for banks to lower interest rates
Money supply growth target for FY10 hiked to 18% against 17%
FY10 credit growth estimate maintained at 20%
FY10 deposit growth estimate maintained at 19%
Expects govt to chalk out deficit-curbing plans
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