RBI does not tweak the key interest rates.
By Neelima Shankar
Oct 29, 2009
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In its quarterly monetary policy review on 27th October, Reserve bank of India left its key rates unchanged. It also maintained the same Cash reserve Ratio of 5 percent.

There were a lot of apprehensions regarding RBI changing its key rates due to excessive liquidity in the system and rising inflation but the apex bank said that economic recovery was a more important issue than tackling increasing inflation.

The central bank also left the repo and the reverse repo rates untouched at 4.75 percent and 3.25 percent respectively. The repo rate is the rate at which RBI lends its short term funds to banks and reverse repo is the rate at which it sucks out liquidity from the banking system.

Rupa Rege Nitsure, chief economist at Bank of Baroda said, "RBI will wait for some more time for clarity on inflation figures. They would wait for growth to stabilise and would like to see demand-pull inflation having more influence on inflation rather than supply shocks."

The banking regulator has, however, raised the SLR by 100 basis points to 25 percent. It has also revised the inflation target from 5 percent to 6.5 percent.

RBI has already started taking measures to exit its accommodative monetary policy introduced in the wake of the financial crisis. For instance, it has ended a special repurchase facility for banks; it has also ended a forex swap facility.

Analysts expect RBI to start increasing the repo and the reverse repo rates from January though the banks might need that earlier.


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