RBI finally declared its Mid Quarter Monetary Policy Review today on 16th Dec,2010 and decided to retain the repo rate at 6.25% and the reverse repo rate at 5.25% under the RBI’s liquidity adjustment facility. Reports said, central bank has also decided to retain the cash reserve ratio at 6% of net demand and time liabilities of scheduled banks.
RBI decided to first reduce the statutory liquidity ratio (SLR) of scheduled commercial banks (SCBs) from 25% to 24% with effect from December 18, 2010; second conduct open market operation auctions for purchase of government securities for an aggregate amount of Rs 48,000 crore in the next one month, the schedule for which is being issued separately, these two measures are expected to inject liquidity on an enduring basis of the order of Rs 48,000 crore.
RBI has indicated that it will review its projection of 8.5% growth in GDP for 2011 in the Third Quarter Review scheduled on 25 January 2011. It also indicated that the risk to the Reserve Bank’s projection of 5.5% inflation by March 2011 is on the upside.
Since the RBI so clearly marked a break in its November meeting, the data does not justify changing its position. The continuing decline inflation and wholesale prices allows the break to extend the time. But the activity data in India were very strong and global inflation pressure is not useful.
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