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RBI Guv Rajan keeps policy repo rate & CRR unchanged
02
Dec '14
In its 5th bi-monthly monetary policy statement for 2014-15, RBI Governor Raghuram Rajan has kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8.0 per cent.

On the basis of an assessment of the current and evolving macroeconomic situation, it has also been decided to keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liabilities (NDTL).

RBI will continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 7-day and 14-day term repos of up to 0.75 per cent of NDTL of the banking system through auctions.

The apex bank has also decided to continue with daily one-day term repos and reverse repos to smooth liquidity.

Consequently, the reverse repo rate under the LAF will remain unchanged at 7.0 per cent, and the marginal standing facility (MSF) rate and the bank rate at 9.0 per cent.

In his assessment of the global economy, the Governor said, since the last monetary policy statement of September 2014, the global economy has slowed, though the recent sharp fall in crude prices will have a net positive impact on global growth.

The recovery in the United States is broadening on the back of stronger domestic consumption, rising investment and industrial activity.

In the Euro area, headwinds from recessionary forces continue to weaken industrial production and investment sentiment.

In Japan, growth may be picking up again on the back of stronger exports, helped in part by further quantitative and qualitative easing that has led to a depreciation of the yen.

In China, disappointing activity and still-low inflation have prompted rate cuts by the People’s Bank of China.

In other major emerging market economies (EMEs), downside risks to growth from elevated inflation, low commodity prices, deteriorating labour market conditions and stalling domestic demand have become accentuated.

Notwithstanding the cessation of asset purchases by the US Fed, financial markets have remained generally buoyant on abundant liquidity stemming from accommodative monetary policies in the advanced economies (AEs).

The search for yield has driven global equity markets to new highs, with investors shunning gold and commodities.

Capital flows to EMEs recovered from market turbulence in the first half of October, although some discrimination on the basis of fundamentals is becoming discernible.

Domestic activity weakened in the second quarter of 2014-15, and activity is likely to be muted in the third quarter too, because of a moderate kharif harvest.

The deficiency in the north-east monsoon rainfall has constrained the pace of rabi sowing, except in the southern States.

Despite reasonable levels of water storage in major reservoirs, the rabi crop is unlikely to compensate for the decline in kharif production earlier in the year and consequently, agricultural growth in 2014-15 is likely to be muted.


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