The Reserve Bank of India (RBI) has announced to cut a key policy ration by .25 basis points to release Rs. 175 billion into the system for lending. However RBI has kept policy rates unchanged in a hope that it will push growth but also keep inflation under check.
Experts says that RBI has chosen the move like a cut in Cash Reserve Ratio (CRR) instead of the repo cut for which finance minister P. Chidambaram was seeking for.
According to sources, the cash reserve ratio, or the money against deposits, which commercial banks have to retain in the form of liquid assets such as cash, has been cut to 4.25 percent from 4.5 percent at present. All the other policy rates and reserve ratios were, however, kept unchanged.
RBI Governor D. Subbarao said that the reduction in the cash reserve ration is intended to pre-empt a prospective tightening of liquidity conditions, thereby keeping liquidity comfortable to support growth.
The current changes have been against the finance minister's desire in which he had pledging to nearly halve India's fiscal deficit by March 2017, while hoping the central bank would ease monetary policy taking into account the recent reform measures to help economic growth.
After the new changes done by RBI, following are the new policy rates and reserve ratios:
Bank rate: 9 percent
Repurchase Rate: 8 percent
Reverse Repurchase Rate: 7 percent
Marginal Standing Facility Rate: 9 percent
Cash Reserve Ratio: 4.25 percent
Statutory Liquidity Ratio: 23 percent
(With inputs from IANS)
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