The Hindu Business Line : RBI leaves key rates unchanged

Mumbai, Oct. 24 Belying market expectations of further measures to boost investor sentiment, the Reserve Bank of India on Friday left all its key rates – repo, reverse repo and CRR – unchanged, in its mid-term of the monetary policy for 2008-09.

Announcing his maiden monetary policy, Dr D. Subbarao, RBI Governor, said the central bank has taken several measures to infuse liquidity in the banking system over the past one month.

The RBI is trying to manage the judicious mix between growth, inflation and financial stability. “While there is a downturn in growth, there continues to be concerns about inflation. We need to balance them. The three variables are growth, financial stability and price stability. We have tried to balance them and we will continue to balance them,” said.

In the past one month, the RBI cut CRR by 250 basis points, repo by 100 basis points, relaxed SLR norms allowing banks to borrow more and provided special liquidity facility to mutual funds. These and other measures announced by the Government together provided a liquidity support of Rs 1,85,000 crore.

“It is difficult in uncertain times to calibrate very precisely. If we find that liquidity is short, we will take measures to inject further liquidity. If we find that the measures we have taken to inject additional liquidity are putting inflationary pressures, we will withdraw these measures,” Dr Subbarao said.

In view of the likely impact of the global slowdown on the economy, the RBI has lowered its growth target for this fiscal to 7.5-8 per cent from the earlier projection of around 8 per cent.

Keeping in view the supply management measures taken by the government and the lagged demand response to the monetary policy measures, it maintained its earlier projection of inflation at seven per cent by end-March 2009.

“Inflation continues to be a concern. At 11 per cent, it is much beyond our tolerance level and unacceptable,” Dr Subbarao said.

On whether banks will reduce interest rates immediately, the Governor said it is a business decision of banks and not for RBI to interfere.

“As a regulator, we will signal interest rates and it is for the banks to decide what their interest rates should be,” Dr Subbarao said.