Highlights: 3rd Quarter Review of Monetary Policy by RBI

MUMBAI: The Reserve Bank of India (RBI) had announced a half percentage point decline in the cash reserve ratio (CRR) at the monetary policy review yesterday. The main highlights of the third quarter review of the monetary policy has been - Cash reserve ratio reduced by 50 basis points (bps) to 5.5% as compared to 6%, which will in turn lead to the release of Rs 320 billion into the system.

The reduction can be seen as a reinforcement of the norm that future rate actions will be reduced too. The repurchase rate, or short-term lending rate, has been unchanged at 8.5%. The Reverse repurchase rate, or short-term borrowing rate, was at 7.5%. The Bank rate has been untouched at 6%.

The growth slipping due to the uncertain global environment, cumulative affect of the previous monetary policy tightening and domestic policy uncertainties. The projection on growth has been declined 7% as against 7.6% for the present fiscal year.

The moderation in inflation shows the strong decline in the prices of seasonal food items. The Inflation in protein-based food items and non-food produced products continues to stay high. The upside risks to inflation came up from the international crude oil prices, rupee fall and slip in the fiscal deficit

The Inflation is estimated to moderate to 7% by the end of March. It is believed that the home loans and other loans to individuals and businesses will become cheaper with the 50 bps cut in CRR.

Reports suggests that the forthcoming budget needs to emphasis on fiscal consolidation. The administrative actions needs to induce investment for strengthening supply constraints in food, infrastructure. The next mid-quarter review of monetary policy is scheduled to be held on March 15