Update on Second Quarter RBI Monetary Policy Review - Zen Securities

RBI in its Monetary Policy Statement for second quarter (July-September), 2012-13 on Oct 30th has decided to CUT the CRR (cash reserve ratio) by 25 BPS to 4.25% from 4.50% effective the fortnight beginning November 3, 2012.

It has however decided to keep the Repo Rate under the liquidity adjustment facility (LAF) UNCHANGED at 8.00% and consequently, the Reverse Repo Rate under the LAF remained UNCHANGED at 7.00%. Marginal standing facility (MSF) rate, determined with a spread of 100 basis points above the repo rate, along with Bank Rate were also UNCHANGED at 9.00%.

With slower growth and high prices of commodities, inflation risks continues to remain high. Mitigating the growth risks and taking the economy to a higher sustainable growth trajectory requires concerted policy action across a range of domains, a process to which the recent announcements by the government have made a significant contribution. However, in the current situation, persistent inflationary pressures alongside risks emerging from twin deficits - current account deficit and fiscal deficit - constrain a stronger response of monetary policy to growth risks. Accordingly, as this process evolves, the stance of monetary policy will be conditioned by careful and continuous monitoring of the evolving growth-inflation dynamic, management of liquidity conditions to ensure adequate flows of credit to productive sectors and appropriate responses to shocks emanating from external developments. RBI has moved conservatively in the rate cut decision to balance rising inflation and government policy reforms in the recent times. However, with more clarity available on the government's fiscal consolidation by the time of next mid-quarter review which is on December 18, 2012, RBI may consider the repo cut.

Source : Equity Bulls

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