RBI says no to reduction in repo and reverse repo rates

31 July, 2012

India's central bank, the Reserve Bank of India in its first quarter review of monetary policy for the fiscal year 2012-13 has decided not to change the key policy rates in the wake of high inflation. This stand of RBI has disappointed those who were expecting a reduction in their EMIs.

THE REPO rate continues to stay at 8 per cent and the CRR at 4.75 per cent of net demand and time liabilities (NDTL) of scheduled banks.

The reverse repo rate under the liquidity adjustment facility (LAF), determined with a spread of 100 basis points below the repo rate, also remains same at 7 per cent.

However, the bank has decided to reduce the statutory liquidity ratio (SLR) of scheduled commercial banks from 24 per cent to 23 per cent of their NDTL with effect from the fortnight beginning August 11, 2012.

Giving the rationale behind its decision to maintan a status quo the RBI in a release said that the whoslesale price index (WPI) based headline inflation has remained sticky, above 7 per cent. This has been on account of increase in food prices, increase in input costs, and upward revision in prices of some administered items such as coal.

The RBI found that the headline inflation has persisted even as growth has moderated and the pricing power of corporates has weakened. Non-food manufactured products inflation has also not declined to the extent warranted by the growth moderation. This reflects severe supply constraints and entrenchment of inflation expectations.