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RBI keeps rates on hold, cuts SLR by 0.5%

India TV Business Desk 03 Jun 2014, 12:19:13 IST
India TV Business Desk
New Delhi: As widely expected, RBI governor Raghuram Rajan has kept the key policy repo rate unchanged at 8 per cent on Tuesday. The move signals that the central bank is not ready to lower the guard on inflation.

The RBI, in its second bi-monthly monetary policy statement, left the short-term lending rate or repo rate, the rate at which it lends short-term funds to banks, at 8 per cent. The bank also kept the cash reserve ratio (CRR), or the portion of deposits banks need to park with the central bank upon which they earn no interest, at 4%.

To increase the availability of credit, the central bank, however, lowered the Statutory Liquidity Ratio (SLR) — the amount of deposits banks keep in government bonds — by 0.5 per cent to 22.5 per cent.

The central bank also reiterated its consumer price inflation target of 8% for January 2015 and 6% for January 2016.

The bank also reduced the liquidity provided under the export credit refinance (ECR) facility from 50 per cent of eligible export credit outstanding to 32 per cent with immediate effect. RBI also introduced a special term repo facility of 0.25% of net demand and time liabilities to compensate fully for the reduction in access to liquidity under the ECR with immediate effect.

The RBI has increased the key repo rate three times since Raghuram Rajan took over as Governor in September.

After meeting Jaitley last week, Rajan had said fighting price increases is a priority and the central bank has always maintained a balance between the need to check inflation and prop up growth.

India`s economic growth remained below the 5 per cent mark for the second year in a row at 4.7 per cent in 2013-14.

Growth remained subdued at 4.6 per cent in the fourth quarter of 2013-14 and during the entire fiscal, mainly due to a decline in manufacturing and mining output.

Rajan has set a target of bringing down consumer price inflation to 8 per cent by the end of the fiscal, and to 6 per cent by the next fiscal.

Retail inflation (consumer price index) was at 8.59 per cent in April year-on-year, after running near or above 10 per cent for almost two years through 2013. Food inflation in April stood at 9.66 per cent.