RBI Credit Policy October 2012

By: DoYouKnow.IN | Views: 898 | Date: 30-Oct-2012

The Reserve Bank of India on Tuesday, 30th October 2012 kept repo rates (the rate at which banks borrow from RBI) unchanged at 8% , while reducing cash reserve ratio by 25 basis points to 4.25%.

The Reserve Bank of India on Tuesday, 30th October 2012 kept repo rates (the rate at which banks borrow from RBI) unchanged at 8% , while reducing cash reserve ratio by 25 basis points to 4.25%. GDP growth forecast for FY13 has been cut to 5.8% from 6.5% and wholesale price based inflation target has been raised to 7.5% from 7.0%.


RBI Monetary & Credit Policy


A quick glance at the monetary policy:


* Repo rate has been left unchanged, while cash reserve ratio has been cut by 25 basis points.


* CRR cut will release Rs 17,500 crore into the system.


* Global growth prospects have deteriorated further and downside risks have increased, even as monetary policy in developed economies remains supportive.


* Liquidity infusion measures by central banks cannot, however, substitute for robust structural solutions that can return developed economies to the path of recovery.


* While (locally) the pace of deceleration in growth momentum moderated in Q1, growth remains below trend and persisting weakness in investment activity has clouded the outlook.


* Industrial output picked up marginally in August and the services PMI showed a modest improvement in September, but the outlook remains uncertain.


* Despite improvement in rainfall in the months of August and September, production of Kharif foodgrains in 2012-13 will be lower by 9.8 per cent over last year.


* While prospects for agriculture appear resilient, overall outlook for economic activity remains subdued. Accordingly, GDP growth for 2012-13 is revised downwards to 5.8 per cent.


* Baseline projection for headline WPI inflation for March 2013 raised to 7.5 per cent from 7.0 per cent and is expected to rise somewhat in Q3 before beginning to ease in Q4.


* On the downside, slower growth and excess capacity in some sectors will help moderate core inflation. On the upside, persistent supply constraints may be aggravated as demand revives, resulting in price pressures.


* Global commodity prices remain high. As under-pricing in several products (fuel, fertilizer, electricity) is corrected as part of fiscal consolidation, inflation will rise.


* Persistent increase in rural and urban wages, unaccompanied by commensurate productivity increases, is also a source of inflationary pressures.


* The large twin deficits, i.e., the current account deficit and the fiscal deficit continue to pose significant risks to both growth and macroeconomic stability.


* Banks will have to set aside 2.75% of their capital for restructured standard assets, against 2.0% earlier.


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