Tuesday October 27, 2009

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By Sam Devraj  ( Assistant Editor )

Reviewing monetary policy: Reserve Bank of India governor Duwuri Subbarao

INDIA’S central bank kept key short-term interest rates unchanged at their record lows today, saying its priority was helping a recovery take root while keeping an eye on inflation.

The repo, the rate at which the central bank lends to commercial banks, remains at 4.75 per cent, while the reverse repo, the rate at which it borrows from banks, stays at 3.25 per cent.

“The precise challenge which the bank faces is to support the recovery process without compromising on price stability,” Reserve Bank of India governor Duwuri Subbarao said in the statement.

The bank did take minor action to mop up some of the excess liquidity in the banking system, which is the result of “unconventional” measures taken during the worst of the global financial crisis.

“Reversing conventional measures is not appropriate for now, but the unconventional measures can be reversed immediately,” said Subbarao after the half-yearly review of monetary policy.

To this effect, the RBI restored the statutory liquidity ratio (SLR) - the minimum share of bank deposits to be held in government bonds, cash and gold - for commercial banks to 25 per cent, from 24 per cent.

The cash reserve, the amount which banks have to keep aside as deposit, was left unchanged at 5.0 per cent.

Analysts had suggested this might be increased to further reduce liquidity.

The decision to hold short-term interest rates steady had been widely expected by economists.

India's inflation was at 1.21 per cent for the week ended October 10, official data showed last week.

The bank has said that figure could rise further in coming months, forecasting 6.5 per cent by March next year.

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