RBI Monetary Policy - Mid Quarter Policy - March 2013 - Eastern Financiers

In the tough act of balancing between growth and Inflation, the Reserve Bank of India ruled in favour of growth as it moved on to cut the key policy rate in its Mid-Quarter Monetary Policy review. The Central Bank acknowledged the fact that the economic environment has been slowing and there is need to address the growth concerns, however any policy action remains constrained by the above comfort level of inflationary pressure persisting in the economy.

RBI, in its Mid quarter Policy review slashed the Repo rate, rate at which Banks borrow from RBI by 25 BPS to 7.5% from 7.75%. Consequently, the reverse repo rate- the rate at which RBI borrows from Banks, gets adjusted to a%age point below the repo rate at 6.5%. The Marginal standing Facility (MSF) rate and the Bank rate now stand at 8.5%, being 100 basis points more than the repo rate. CRR- the portion of deposits that banks keep as reserves with the Central Bank, was not touched by the RBI this time and remains unchanged at 4%.

The 25 BPS repo cut was very much on anticipated lines and the RBI has given the growth case scenario, a benefit of doubt and would be closely monitoring the situation from here on. Overall, the policy statement has been relatively balanced and was more or less similar in stance with the Central Bank's January Policy review. The RBI has been very specific in its approach and has emphasized on the fact that although the union budget has made a firm commitment towards fiscal consolidation and the economic growth momentum has been dismal, yet higher Inflationary pressure, especially the food inflation, creates limited scope for future rate cuts.

Source : Equity Bulls

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