RBI surprises, cuts CRR, repo rates by 25 bps today
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Following are the highlights of the RBI's third quarter monetary policy review:
* Short-term lending rate or repo rate reduced by 0.25 pc to 7.75 pc, first time in nine months.
* Reverse repo rate stands adjusted to 6.75 pc.
* Reduces cash reserve ratio (CRR) by 0.25 pc to 4 pc.
* CRR cut to infuse Rs 18,000 crore in system from Feb 9
* RBI trims growth for fiscal 2012-13 to 5.5 pc from 5.8 pc.
* Policy action aimed at aiding growth by encouraging
investment and improving liquidity to support credit flow.
* Review intends to contain inflation and anchor inflation
* RBI says inflation has come off its peak.
* Revises downward March-end inflation projection to 6.8 pc
from 7.5 pc.
* Q3 CAD likely to widen beyond 5.4 pc of GDP.
* Bank rate stands adjusted to 8.75 per cent with immediate
* Next mid-quarter review of monetary policy on March 19.
(Reuters): RADHIKA RAO, ECONOMIST, FORECAST PTE, SINGAPORE
"It is a timely reduction in the repo rate by the central bank though markets are swiftly likely to look beyond the priced-in move and focus on the policy guidance. RBI has not abandoned its cautious stance, stressing on the 'calibrated and limited' nature of rate support hereon. Scale of rate cuts is closely tied to the government's sustained efforts to correct the twin imbalances and moderating inflation trajectory. Even as few quarters price in substantial rate cuts going forward, we see room for only 75 bps more cuts by end-year."
SHAKTI SATAPATHY, FIXED INCOME STRATEGIST, AK CAPITAL, MUMBAI
"As expected a 25 bps repo cut is well justified amidst sticky retail inflation and subdued investment activities. Further the 25 bps CRR cut though a bit of a surprise, signals limited chances of further OMOs in the rest of the fiscal. The tone of the policy seems neutral with due consideration to support growth at a higher inflation trajectory. We expect the bonds to trade rangebound with limited chances of further OMOs up till budget.
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