RBI Left Key Interest Rates on Hold, Cuts SLR to 24%

MUMBAI: The Reserve Bank of India (RBI) in its mid-quarter review of monetary policy on Thursday, kept unchanged the key policy rates. However, it cuts the Statutory Liquidity Ratio (SLR) from 25% to 24%. The new rates will be effective from December 18.

The bond markets are likely to be affected by reduction in the SLR of scheduled commercial banks (SCBs). Statutory Liquidity Ratio (SLR) is the portion of deposits that banks park in government securities.

“RBI has decided to reduce the Statutory Liquidity Ratio (SLR) of scheduled commercial banks (SCBs) from 25 per cent of their NDTL to 24 per cent with effect from December 18, 2010”, the bank said in a release.

RBI

It was expected that Bank will not change the key rates as it has been increased six times since March. Currently the Reverse Repo Rate stands at 5.25%, Repo Rate stands at 6.25% and CRR stands at 6% under the Reserve Bank’s liquidity adjustment facility (LAF).

Reserve Bank of India has aggressively raised the key rates this year, with lending rates raised by 150 basis points and borrowing rates increased by 200 basis points.

As per the RBI policy released today, RBI has also decided to conduct open market operation (OMO) auctions for purchase of government securities for an aggregate amount of Rs 48,000 crore in the next one month, the schedule for which is being issued separately. RBI has taken these two measures to inject liquidity on an enduring basis of the order of Rs 48,000 crore.

The Sensex was up 87.53 points or 0.45% at 19735.30, and the Nifty was down 2.00 points or 0.03% at 5890.30. About 1450 shares advanced, 1235 shares declined, and 777 shares remain unchanged.

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Slr Rate Reduced | RBI Reduced Slr Rates 25% to 24% | Slr December 2010 Rate | Slr Rate Policy

RBI finally declared its Mid Quarter Monetary Policy Review today on 16th Dec,2010 and decided to retain the repo rate at 6.25% and the reverse repo rate at 5.25% under the RBI’s liquidity adjustment facility. Reports said, central bank has also decided to retain the cash reserve ratio at 6% of net demand and time liabilities of scheduled banks.

RBI decided to first reduce the statutory liquidity ratio (SLR) of scheduled commercial banks (SCBs) from 25% to 24% with effect from December 18, 2010; second conduct open market operation auctions for purchase of government securities for an aggregate amount of Rs 48,000 crore in the next one month, the schedule for which is being issued separately, these two measures are expected to inject liquidity on an enduring basis of the order of Rs 48,000 crore.

RBI has indicated that it will review its projection of 8.5% growth in GDP for 2011 in the Third Quarter Review scheduled on 25 January 2011. It also indicated that the risk to the Reserve Bank’s projection of 5.5% inflation by March 2011 is on the upside.

Since the RBI so clearly marked a break in its November meeting, the data does not justify changing its position. The continuing decline inflation and wholesale prices allows the break to extend the time. But the activity data in India were very strong and global inflation pressure is not useful.

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