Tuesday, October 27, 2009

RBI leaves key rates unchanged

The Reserve Bank of India has kept its benchmark lending and borrowing rates on hold in its quarterly policy review. It has also kept the cash reserve ratio (CRR), (the proportion of deposits banks have to keep with the RBI in reserve) untouched at 5 per cent.

Opting to support a nascent economic recovery instead of tackling rising prices, the central bank left the repo rate (at which it lends short-term funds to banks) at 4.75 per cent, and the reverse repo rate (through which it absorbs liquidity from the banking system), at 3.25 per cent.

It has, however, revised the inflation target to 6.5 per cent from 5 per cent. It has also hiked the SLR from 24 per cent to 25 per cent. The FY10 GDP growth rate remains at 6 per cent.

The inflation rate accelerated to more than 1 per cent for the week ended October 10. This had fuelled speculation that the bank may act to curb mounting price pressures.

Higher prices caused by increasing food costs after a poor monsoon, along with the fragile economic recovery, has confronted the central bank with a dilemma about when to take the first steps to tighten monetary policy.

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