RBI Monetary Policy keeps interest rates on hold; reduces SLR

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RBI Monetary Policy keeps interest rates on hold; reduces SLR
The Reserve Bank of India (RBI) did not deliver any surprises today and kept the repo rates on hold. Repo rates are rates at which the country's central bank lends to other commercial banks in the country. 

The RBI also left the Cash Reserve Ratio (CRR) unchanged. Read more on CRR here

However, the RBI has reduced the Statutory Liquidity Ration (SLR) of scheduled commercial banks by 50 basis points from 23.0 per cent to 22.5 per cent of their NDTL with effect from the fortnight beginning June 14, 2014. 

The RBI has also reduced the liquidity provided under the export credit refinance (ECR) facility from 50 per cent of eligible export credit outstanding to 32 per cent with immediate effect.

"On the basis of an assessment of the current and evolving macroeconomic situation, it has been decided to introduce a special term repo facility of 0.25 per cent of NDTL to compensate fully for the reduction in access to liquidity under the ECR with immediate effect; and continue to provide liquidity under 7-day and 14-day term repos of up to 0.75 per cent of NDTL of the banking system," the RBI has said in its policy statement.

The Reserve Bank of India continued to remain concerned about inflation. "The Reserve Bank remains committed to keeping the economy on a disinflationary course, taking CPI inflation to 8 per cent by January 2015 and 6 per cent by January 2016. If the economy stays on this course, further policy tightening will not be warranted. On the other hand, if disinflation, adjusting for base effects, is faster than currently anticipated, it will provide headroom for an easing of the policy stance," the central bank has stated.

Regarding a cut in today's SLR the RBI has said that as the economy recovers, investment demand and the need for credit will pick up. "To the extent that this contributes eventually to supply, it is important that banks have the room to finance it. A reduction in the required SLR will give banks more freedom to expand credit to the non-Government sector. However, the Reserve Bank is also cognisant of the significant on-going financing needs of the Government. Therefore, the SLR is reduced by 0.50 per cent of NDTL, with any further change dependent on the likely path of fiscal consolidation," it has said.

Bond yield were trading higher, while the stock markets were higher and cheered the policy announcements today.


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