RBI's Bi-Monthly Policy

RBI’s, in its first bi-monthly policy after elections has:
- Reduced the Statutory Liquidity Ratio (SLR) by 50 basis points to 22.5%. This will:
  - Give banks more freedom to expand credit to the non-govt sector increasing their lending to private sector.
  - Opens up the possibility of a large reduction of govt debt holdings by banks.
  - Help infuse around Rs.40,000 crore into the banking system.
Maintained the indicative policy rate (repo rate) and the Cash Reserve Ratio (CRR) unchanged at 8% and 4% respectively.
Delay in the onset of south-west monsoons and a 60% chance of the occurrence of El Nino has clouded the outlook for agriculture. Economic growth in the 1st quarter of 2014-15 appears sluggish.
Reduction in consumer durables and capital goods production, moderation in corporate sales and non-oil non-gold imports indicates a dip in consumption and investment demand.
Retail inflation, measured by the consumer price index (CPI) increased for the 2nd consecutive month driven by rise in food prices. This being a seasonal phenomenon, excluding food and fuel inflation, retail inflation has been edging down.
Strong inflows of portfolio investments supported by FDI and external commercial borrowings have maintained stable financial conditions.
RBI said it is committed to reduce the inflation and reduce the CPI to inflation to 8 per cent by January, 2015, and 6 per cent by January, 2016.
Although it did not announce a cut in interest rates, it said that a faster disinflation will provide headroom for the easing of policies.
Strong govt policy action of food supply and fiscal consolidation along with the depreciation of rupee could balance the risks to inflation.
Read at: http://www.thehindu.com/todays-paper/tp-business/rajan-lobs-the-ball-onto-centre-court/article6080201.ece
http://www.thehindu.com/todays-paper/tp-business/rbi-keeps-key-rates-unchanged-cuts-slr-by-50-basis-points/article6080200.ece

Exams Perspective:

What is Statutory Liquidity Ratio (SLR)?
What is Cash Reserve Ratio (CRR)?
RBI
CAD
consumer price index (CPI)
FDI
Repo Rate
Fiscal Consolidation