India's central bank slashed cash reserve ratio (CRR) by 25 bps in its mid-quarter policy review on Monday. The RBI left key lending and borrowing rates unchanged suggesting inflation continues to be its top priority.
It kept repo and reverse repo rates unchanged at 8% and 7% respectively, while CRR reduced to 4.5% from 4.75% earlier. The CRR cut will pump Rs 170 billion as additional liquidity in the banking system.
While the recent upward revision in diesel prices and rationalisation of subsidy for LPG is a significant achievement, in the short-term, there will be pressures on headline inflation. Over the medium-term, however, it will strengthen macroeconomic fundamentals, the RBI said. Over the longer run, holding down subsidies to under 2% of GDP as indicated in the Union Budget for 2012-13 is crucial to manage demand-side pressures on inflation. Containing inflationary pressures and lowering inflation expectations warrant maintaining the momentum of recent policy actions to step up investment, alleviate supply constraints, and improve productivity, it opined.
It kept repo and reverse repo rates unchanged at 8% and 7% respectively, while CRR reduced to 4.5% from 4.75% earlier. The CRR cut will pump Rs 170 billion as additional liquidity in the banking system.
While the recent upward revision in diesel prices and rationalisation of subsidy for LPG is a significant achievement, in the short-term, there will be pressures on headline inflation. Over the medium-term, however, it will strengthen macroeconomic fundamentals, the RBI said. Over the longer run, holding down subsidies to under 2% of GDP as indicated in the Union Budget for 2012-13 is crucial to manage demand-side pressures on inflation. Containing inflationary pressures and lowering inflation expectations warrant maintaining the momentum of recent policy actions to step up investment, alleviate supply constraints, and improve productivity, it opined.
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