First-Quarter Monetary Policy Review July 2012: RBI unmoved
- Consequently, the reverse repo rate under the LAF will remain unchanged at 7.0%, and the marginal standing facility (MSF) rate and the bank rate would remain at 9.0%
- Also, the cash reserve ratio (CRR) of scheduled banks is unchanged at 4.75%, however, the statutory liquidity ratio (SLR) of scheduled commercial banks has been reduced to 23% from 24% of their net demand and time liabilities (NDTL) with effect from August 11, 2012. However, since most of the banks under Reliance Securities' coverage have 26-28% SLR, the change in SLR by RBI would have negligible impact
- Inflation: Inflation control remains the primary focus of monetary policy. In the current scenario, lowering policy rates will only aggravate inflationary impulses without necessarily stimulating growth. Given the impact of deficit monsoon on food prices coupled with the pass-through of rupee depreciation to imports and embedded risks of suppressed inflation, there remains an upward pressure on overall inflation. Hence, the baselineWPI inflation is raised to 7% from 6.5%.
- GDP: RBI had projected GDP growth for 2012-13 at 7.3% on the assumption of a normal monsoon and improvement in industrial activity. Given the weak industrial activity and global slowdown, the growth in services sector is also expected to be sluggish. Hence, RBI has lowered the GDP growth projection to 6.5%for 2012-13.
- Liquidity: To provide free-flowing credit to productive private sectors, RBI lowered the SLR to 23% and has assured continued support via OMOs.
RBI has left rates unchanged on the back of increased inflationary expectations in the light of weak monsoon and higher food and retail prices. Additionally, Government’s inaction in terms of fiscal consolidation and infrastructural bottlenecks in coal, minerals and power may exert upside pressure on non-food manufactured products inflation. Having said that, RBI has reiterated support for sustainable liquidity and growth path going forward. Thus, RBI would stand ready to respond to any such shocks swiftly, using all available instruments.
Click here to read the full report
Reliance Securities comes from the house of Reliance Capital, one of India’s leading & prominent financial houses. Founded in 1986, Reliance Capital has come a long way from being into steady annuity yielding businesses such as leasing, bill discounting, and inter-corporate deposits to diversifying its activities in the areas of asset management and mutual fund; life and general insurance; consumer finance and industrial finance; stock broking; depository services; private equity and proprietary investments; exchanges, asset reconstruction; distribution of financial products and other activities in financial services.
For more information please write in to email@example.com
Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor IndiaNotes.com accept any liability whatsoever arising from the use of any of the above contents.
- Monetary Policy: RBI maintains status quo
- RBI Monetary Policy - 3rd Bi-Monthly Policy
- Views on RBI Policy by Motilal Oswal
- Banks not allowed to trade in bonds for infra lending - RBI
- India allows foreign fund managers to hold more government debt.
Have a question?
CFP - Keynotes Financial Opiniery