RBI releases third monetary policy review: CRR reduced to 50 basis points, Repo rate unchanged

Reserve Bank of India here on 24th January 2012 announced the statement on Third quarter Monetary Policy Review, making the markets surprised with unexpected cut in Cash Reserve Ratio(CRR) and it also estimates the GDP growth to be only 7% as against the previous expected 7.6%. 

Global growth prospects for 2012 have deteriorated in an environment of increasing concerns over the sovereign debt crisis in the euro area amidst limited monetary and fiscal policy space. Given the weak growth prospects in advanced economies and past monetary tightening undertaken by EDEs to contain inflation, growth in the EDEs has also been moderating. Accordingly, global growth during 2012 is expected to be lower than the International Monetary Fund’s September 2011 projection of 4.0 per cent.

Here are some important points in the Governor's Statement:

Inflation: Although non-oil commodity prices showed some correction in 2011, crude oil prices have remained firm. Supply limitations and continued ultra accommodative monetary policies in major advanced economies pose upside risks to commodity prices in 2012. Currency depreciation in EDEs witnessed in the second half of 2011 and the lagged pass-through to domestic prices could also add to inflationary pressures in EDEs. 

Cash Reserve Ratio: It has been decided to: reduce the cash reserve ratio (CRR) of scheduled banks by 50 basis points from 6.0 per cent to 5.5 per cent of their net demand and time liabilities (NDTL) effective the fortnight begining January 28, 2012. As a result of the reduction in the CRR, around `320 billion of primary liquidity will be injected into the banking system.

Repo Rate: The policy repo rate under the liquidity adjustment facility (LAF) has been retained at 8.5 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 7.5 per cent.

Marginal Standing Facility (MSF) Rate: The Marginal Standing Facility (MSF) rate, determined with a spread of 100 basis points above the repo rate, stands at 9.5 per cent.

Bank Rate: The Bank Rate has been retained at 6.0 per cent.