New Delhi: As expected, the Reserve Bank of India has kept the repo rate (the interest rate at which it lends short-term funds to banks) unchanged at 7.75 per cent.
However, the RBI has slashed statutory liquidity ratio (SLR) -- the slice of deposits that banks necessarily have to invest in Government securities -- of scheduled commercial banks by 50 basis points from 22.0 per cent to 21.5 per cent of their deposits with effect from the fortnight beginning February 7, 2015.
The RBI said the SLR reduction will create space for banks to expand credit and banks should use this headroom to increase their lending to productive sectors on competitive terms so as to support investment and growth.
RBI also said that "key to further easing are data that confirm continuing disinflationary pressures. Also critical would be sustained high quality fiscal consolidation...". "Given that there have been no substantial new developments on the disinflationary process or on the fiscal outlook since January 15, it is appropriate for the Reserve Bank to await them and maintain the current interest rate stance," Rajan said while explaining the rationale behind status quo on rates.
"The outlook for growth has improved modestly on the back of disinflation, real income gains from decline in oil prices, easier financing conditions and some progress on stalled projects. These conditions should augur well for a reinvigoration of private consumption demand, but the overall impact on growth could be partly offset by the weaker global growth outlook and short-run fiscal drag due to likely compression in plan expenditure in order to meet consolidation targets set for the year," the RBI said.
RBI estimated the current account deficit (CAD) for 2014- 15 at 1.3 per cent of the GDP, significantly lower than the earlier projection.
The RBI had cut the rate on January 15, outside policy review cycle, from 8 per cent to 7.75 per cent.
Here are the highlights of the RBI's bi-monthly monetary policy statement:
* Short-term lending rate unchanged at 7.75 pc
* Cash Reserve Ratio unchanged at 4 pc
* Statutory Liquidity Ratio cut to 21.5 pc, effective February 7, to unlock banking funds
* Current Account Deficit at 1.3 pc of GDP for 2014-15
* Inflation target at 6 per cent by January 2016
* GDP growth estimates under old base for current fiscal at 5.5 pc; 6.5 pc for 2015-16
* Banks asked to lend to productive sector to spur investment, growth
* Limit of foreign exchange remittance doubled to $2,50,000 per person annually
* 72 application for Small Finance Banks, 41 for Payments Banks received
* Export credit refinance to be replaced with provision of system level liquidity, effective February 7
* Foreign portfolio investors allowed to re-invest in G-Secs after their investment limits are utilised
* Bi-monthly policy statement for 2015-16 on April 7.
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