The Reserve Bank of India, as expected, has kept the key rates unchanged in the economy, but reduced the statutory liquidity ratio by 0.5 percentage points to 22%. The RBI had cut down the SLR from 22.5% to 22% to June. However, this might not help the banks much unless the actual demand for funds goes up in the economy.
RBI keeps inflation target at 8% by January 2015, 6 per cent by January 2016. RBI has peg GDP growth rate for current fiscal at 5.5%, which falls within 5-6% range projected in April.
The policy repo rate under the liquidity adjustment facility (LAF) remains unchanged at 8% while the cash reserve ratio (CRR) of scheduled banks stands at 4%. The reverse repo rate under the LAF will remain unchanged at 7% and the Bank Rate at 9%.
The RBI said that the global economy has been picking up, albeit slowly since June this year, and the sentiment of the domestic economy seems to be on a revival path too. Consumer price inflaion ahs been easing, and the CPI keeping food and fuel out, has been declining since September last year.
It said in the statement, "The Reserve Bank will review existing liquidity arrangements and continue to monitor and manage liquidity to ensure adequate flow of credit to the productive sectors."
But the RBI has cautioned that it is still concerned with inflation due to uncertain monsoons and geopolitical concerns that could push up the oil prices. The RBI would thus maintain a vigilant stance over inflation numbers through a cautious monetary policy.
It said its inflation target of 8% in 2015 is achievable but it is the medium term targets that it is concerned about.
The statement added, "The Reserve Bank has taken a number of steps to enhance efficiency, increase entry, speed up resolution, and improve access to financial services, such as modified regulations on long term lending and borrowing, proposals for licensing payment banks and small banks, a framework to deal with stressed assets, actions to further the use of mobile phones in banking, and efforts to simplify know your customer (KYC) norms, among others. The Reserve Bank will continue to carry forward its banking sector reforms agenda."
The next interest rate review announcement is expected on September 30, 2014.