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RBI
cuts CRR, leaves lending rate unchanged
Mumbai, January 24, 2012 (PTI):* The Reserve Bank of
India Tuesday injected Rs 32,000 crore into the system by lowering
the cash reserve ratio (CRR) by half-a-percentage point but kept the
short-term lending rate unchanged in view of persisting inflationary
concerns. "Based on the current inflation trajectory, including
consideration of suppressed inflation, it is premature to begin
reducing the policy rate," RBI Governor D Subbarao said while
unveiling the third quarterly monetary policy review. With the
additional liquidity created by the CRR cut, there is a possibility
that banks may reduce the interest rate to attract borrowers.
Projecting a lower growth of 7 per cent for 2011-12, the Reserve
Bank
said the policy actions are meant to "mitigate downside risks
to growth" and anchor inflationary expectations. The CRR, the
amount of deposits the banks are required to keep with RBI in cash,
has been reduced to 5.5 per cent from 6 per cent with effect from
January 28, releasing Rs 32,000 crore in the system to ease the
liquidity problems. The short-term lending rate (repo) has been kept
unchanged at 8.5 per cent. The stock market reacted positively to
the policy announcement and banking stocks, in particular, shot up.
The RBI kept the repo or the short-term lending rate at 8.5 per cent
while making it clear that any cut in it will only happen after
moderation in inflation.
The central bank expects the headline inflation to moderate
to 7 per cent by March, but there are concerns over the persistently
high prices of non-food manufacturing items. On CRR cut, RBI said,
"Persistence of tight liquidity conditions could disrupt credit
flow and further exacerbate growth risks. CRR is the most effective
instrument for permanent liquidity injections." It indicated
that future rate actions could see more lowering on the front. Apart
from easing liquidity pressures, the RBI said the policy actions are
aimed at mitigating downside risks to growth and anchoring medium
term inflation expectations.
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