While keeping key rates unchanged, the RBI has reduce the liquidity provided under the export credit refinance facility from 32 % of eligible export credit outstanding to 15% with effect from October 10, 2014
The Reserve Bank of India (RBI), in its fourth bi-monthly credit policy review on Tuesday has kept repo, reverse repo, cash reserve ratio (CRR) and bank rate unchanged. The central bank has sought to reduce the liquidity provided under the export credit refinance (ECR) facility from 32% of eligible export credit outstanding to 15% with effect from 10 October 2014. The reverse repo rate under the liquidity adjustment facility (LAF) will remain unchanged at 7%, and the marginal standing facility (MSF) rate and the bank rate at 9%.
In a statement, RBI Governor Dr Raghuram Rajan said, “since June, headline inflation has ebbed to levels which are consistent with the desired near-term glide path of disinflation— 8% by January 2015. The most heartening feature has been the steady decline in inflation excluding food and fuel, by a cumulative 111 basis points since January 2014, to a new low.”
He however cautioned that, there are risks from food price shocks as the full effects of the monsoon’s passage unfold, and from geopolitical developments that could materialise rapidly. Therefore, “the future policy stance will be influenced by the Reserve Bank’s projections of inflation relative to the medium term objective (6% by January 2016), while being contingent on incoming data,” the RBI governor added.
The RBI will continue to provide liquidity under overnight repos at 0.25% of bankwise NDTL at the LAF repo rate and liquidity under 7-day and 14-day term repos of up to 0.75 per cent of NDTL of the banking system through auctions and continue with daily one-day term repos and reverse repos to smooth liquidity.
Speaking on economic activity the governor mentioned that, “The momentum of activity in all sectors of the economy is yet to stabilize. Agriculture should shed the effects of recent shocks and pick up in Q4 of 2014-15. Industrial activity will await improvement in the business environment and the resumption of consumption and investment demand before gaining sustained speed. Post-monsoon revival in construction activity and the likely strengthening of momentum in business and financial services should sustain the recent signs of expansion in the services sector. The key to a turnaround in the growth path of the economy in the second half of the year is a revival in investment activity – in greenfield as well as brownfield stalled projects – supported by fiscal consolidation, stronger export performance and sustained disinflation.”
With no change in key policy rates, the repo rate (the rate at which the RBI lends money to banks) remains at 8%. Similarly reverse repo rate (the rate at which the RBI borrows from banks), CRR, and bank rate remains at 7%, 4.00% and 9%, respectively.
The fifth bi-monthly monetary policy statement is scheduled on Tuesday, December 2, 2014
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