RBI leaves policy rates unchanged

The Reserve Bank of India (RBI) left all policy rates unchanged but kicked off the reversal of the unprecedented stimulus measures taken to mitigate the fallout from the global financial meltdown. The apex bank kept the Cash Reserve Ratio (CRR) unchanged at 5%, the Repurchase Rate (repo) unchanged at 4.75% and the Reverse Repo untouched at 3.25%. The Bank Rate has been retained unchanged at 6%. However, the RBI has hiked SLR rates by 100bps to 25% from 24%.

The statutory liquidity ratio (SLR) of scheduled commercial banks was reduced from 25% to 24% of their NDTL with effect from November 8, 2008. Banks are currently maintaining SLR investments at 27.6% of their NDTL, net of LAF collateral securities, and 30.4% of NDTL, inclusive of LAF collateral securities. "As such, the increase in the SLR will not impact the liquidity position of the banking system and credit to the private sector," the RBI said in a statement.

The RBI said that the liabilities of scheduled banks arising from transactions in CBLO with Clearing Corporation of India Ltd. (CCIL) will be subject to maintenance of CRR with effect from the fortnight beginning November 21.

The stance of monetary policy for the remaining period of 2009-10 will be as follows:

* Keep a vigil on the trends in inflation and be prepared to respond swiftly and effectively through policy adjustments to stabilise inflation expectations.
* Monitor the liquidity situation closely and manage it actively to ensure that credit demands of productive sectors are adequately met while also securing price stability and financial stability.
* Maintain a monetary and interest rate regime consistent with price stability and financial stability, and supportive of the growth process.

The RBI said that it is mindful of its fundamental commitment to price stability. "It will continue to monitor the price situation in its entirety and will take measures as warranted by the evolving macroeconomic conditions swiftly and effectively," it added.

Finance Minister Pranab Mukherjee said that the easy monetary policy is likely to continue until economic recovery is firm. "Until the economy is on a firm recovery path it will continue for some more time," Mukherjee said. He also said that the Indian economy was responding well to the fiscal and monetary steps taken so far and it was likely to expand 6.5-6.75% in the fiscal year ending March 2010.