Monetary Policy

RBI today, released the mid-quarterly review of monetary policy and as expected, it has left the key rates untouched. The policy review primarily aimed at addressing the concerns of liquidity deficit.

The RBI had earlier announced that it would leave the rates unchanged if there is a decline in the inflation figures. Keeping in view the reduced inflation figures for the month of November, the repo, reverse repo and CRR stand unchanged at 6.25%, 5.25% and 6%, respectively.

However, the bank has cut the statutory liquidity ratio (SLR) by 1% to 24%. Earlier banks could only use 2% of SLR securities for getting liquidity support while now they will have to maintain 1% less SLR. The measure is expected to infuse liquidity of around Rs.25, 000 crore into the system. Another measure that the central bank announced on liquidity front is that it would conduct open market operation (OMO) auctions for purchase of government securities for an aggregate amount of Rs.48, 000 crore over the next one month. Together, both these measures will help ease the liquidity deficit to some extent which otherwise has remained close to Rs.1 lakh crore for more than a month.

According to RBI, these measures will alleviate liquidity pressure in line with the policy and reduce liquidity deficit close to RBI’s comfort zone. These measures will help in stabilizing overnight interest rates but, at the same time the extent of deficit could constrain banks’ ability to expand their balance sheets in accordance with the growing economy.