RBI Mid Quarter Policy Review - December 2012 - Eastern Financiers

Sticking to the second quarter policy guidance in October which laid down in its review that it will not ease monetary policy before early next year as cooling inflation is still too high for comfort—delivered on the same in its mid quarter December policy. RBI in its mid quarter policy review kept the repo rate, rate at which banks borrow from RBI unchanged at 8% since April that automatically adjusts the Reverse Repo rate—rate at which RBI borrows from bank, a percent below at 7% and the Marginal Standing Facility (MSF) rate stands adjusted at 9%. Bank rate has been kept unchanged at 9%.

CRR—the portion of deposits that banks keep as reserves with the RBI which was curtailed by 25BP each in October and September policy review, was kept unchanged in mid quarter December review at 4.25%. The policy however was almost on anticipated lines with no cut in the repo and the reverse repo rate, nevertheless an ease of around 25BP was projected in CRR to ease liquidity further. RBI maintained complete status quo in the current policy review, indicating that the January policy will be crucial. The RBI is slated to announce the third quarter policy review on January 29.

Reserve Bank however, acknowledged the ease in WPI inflation and said, "In view of inflation pressures ebbing, monetary policy has to increasingly shift focus and respond to the threats to growth from this point onwards. Liquidity conditions will be managed with a view to supporting growth as stated in the second quarter review, thereby preparing the ground for further shifting the policy stance to support growth. Overall, recent inflation patterns and projections provide a basis for reinforcing their October guidance about policy easing in the fourth quarter."

The central bank that curtailed its baseline economic growth forecast for the fiscal year 2013 to 5.8% from 6.5%, while raising its estimate for wholesale price inflation to 7.5% from 7% in the second quarter review—shall update the same in its third quarter policy review in January.

Source : Equity Bulls

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