Zee Media Bureau
New Delhi: The Reserve Bank of India (RBI) on Tuesday kept the short-term indicative policy rate (repo rate) unchanged at 7.75 percent but slashed statutory liquidity ratio (SLR) by 0.5 percent to 21.5 percent at its sixth bi-monthly monetary policy review.
It has also decided to keep the cash reserve ratio (CRR), the portion of deposits which the banks are required to have in cash with the central bank, unchanged at 4 percent.
"Given that there have been no substantial new developments on the disinflationary process or on the fiscal outlook since January 15, it is appropriate for the RBI to await them and maintain the current interest rate stance," RBI Governor Raghuram Rajan said in the sixth bi-monthly monetary policy statement.
To help exports sector, which of late has been struggling following more headwinds in the global economy, the central bank has decided to replace export credit refinance facility with the provision of system level liquidity with effect from February 7.
Also, RBI slashed Statutory Liquidity Ratio (SLR), a percentage of funds banks have to necessarily park with RBI, by 50 basis points to 21.5 percent.
On inflation, the policy document took consolation in the declining trend and noted that even the upturn in December turned out to be muted relative to projections.
"Heightened volatility in global financial markets, including through the exchange rate channel, also constitute a significant risk to the inflation assessment. Looking ahead, inflation is likely to be around the target level of 6 percent by January next.
The RBI had announced a surprise rate cut of 25 basis points last month after maintaining a hawkish monetary stance for 20 months.
While lowering the policy repo rate to 7.75 percent from 8 percent, RBI had said on January 15 that further rate cuts would depend on inflationary expectations and improvement in the fiscal situation.
The concerns on fiscal deficit front have also eased, especially after the government last week garnered a record Rs 22,577 crore through disinvestment of 10 percent stake in Coal India Ltd.
The plunge in global crude prices and bigger-than-expected falls in domestic vegetable and fruit prices have led to sharply easing inflation. Consumer prices rose 5 percent in December, well within the RBI target of 6 percent by January 2016.
Until a massive revision in India economic growth figures for the fiscal year that ended last March, India had seemed to have been struggling to recover from its slowest phase of growth since the 1980s.
But last Friday, the government revised its data, changing the formula to show the economy grew 50 percent faster than earlier estimated in 2013/14.
Growth for the previous fiscal year is now put at 6.9 percent, instead of 4.7 percent. That is below the 8 percent rate needed to create enough jobs for the millions of young Indians joining the workforce each year, and analysts doubted whether the revision would be used by the RBI as a reason to delay future rate cuts.
With agency inputs
