RBI keeps the rates at the same level
By Joseph Samson
Jan 29, 2008
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New Delhi: The Reserve Bank of India's (RBIs) Governor Dr. Y V Reddy has laid all the speculations to rest and kept the rates unchanged. All the three rates, the Cash Reserve Ratio (CRR), repo rate and the bank rate have been maintained at the same level. But the RBI has hinted at the flexibility of changing the repo rate and reverse repo rate in near future.

The reverse repo rate has been maintained at 6 percent, the CRR is also kept at the 7.5 level. The RBI's credit policy announced today has put emphasis on liquidity management and maintaining price stability. RBI has set the inflation target for 07-08 at 4-4.5 percent. To maintain inflation at this levels RBI believes that the liquidity situation has to be controlled since too much liquidity can lead to a increase in inflation. The global economic conditions, an expected rise in food and oil prices will have its impact on inflation.

On the bankers concern on their inability to lower interest rates unless RBI shows 'positive signal' the Governor reacted sharply and pulled them up for not lowering the rates despite comfortable liquidity conditions and a slowdown in credit. Experts believe that this step by RBI might lead to banks re-pricing their deposit and lending rates and though some banks might continue the discounted rates or offer further cuts to improve credit off-take but a broad softening of rates might not happen before the next quarter.

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