RBI Third Quarter Review Highlights

Posted by MarketFastFood on 24/01/2012

Source: Franklin Templeton Mutual Fund

At its third quarter review of the FY12 monetary policy today, RBI has announced the following changes –

Monetary Measures:
Reduced Cash Reserve Ratio (CRR) by 50 bps to 5.50%
Repo rate has been maintained at 8.50%
Consequently the Reverse Repo rate and the Marginal Standing Facility rate stand unchanged at 7.50% and 9.50% respectively
Policy move in line with expectations – central bank adopts cautious stance, given upside risks to inflation and high fiscal deficit.
The CRR cut will inject about Rs.32,000 crore liquidity in the system and help reduce ongoing liquidity stress amidst high government borrowing and slowdown in capital flows.
Has revised GDP growth projections downwards to 7.0% from 7.6% earlier, factoring in the sluggish investment activity and global uncertainties. Expects GDP growth to be relatively stronger in FY13.
Has retained WPI projections for March 2012 at 7% – the recent moderation in inflation is primarily due to drop in prices of seasonal food items and high base effect. Upside risks to inflation persist from elevated global crude oil prices, weak rupee and fiscal situation.
Non-food credit growth forecasts revised downwards to 16% from 18%, given lower demand for credit.
Looking ahead, the bank has indicated liquidity management will be a priority for the bank in the current environment. A reversal in monetary policy cycle will depend on sustainable decline in inflation and policy actions to contain fiscal deficit.