Reserve Bank of India (RBI) has left all rates unaltered after six increases since March. Thus rates including repo, reverse repo, CRR stand unchanged at 6.25%, 5.25% and 6%, respectively.
Even though easing inflation has given the RBI enough room to leave interest rates on hold at its policy review, it has warned that the risk in its inflation outlook is to the upside and unveiled steps to address persistently tight liquidity.
The bank has cut the statutory liquidity ratio (SLR) from 25% to 24% with effect from December 18, 2010 to January 28, 2011. It would also 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. These two measures are expected to inject liquidity on an enduring basis of the order of Rs 48,000 crore.
Commenting on its rational behind the move, the RBI stated that these measures will alleviate liquidity pressure in line with the policy and reduce liquidity deficit close to RBI’s comfort zone. While these measures have helped stabilise overnight interest rates, the extent of deficit could constrain banks’ ability to expand their balance sheets commensurate with the productive needs of the economy.
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