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Highlights of First Quarter Review of Monetary Policy Statement 2012-12 (31/07/2012) 

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Rajesh Goyal 






(A)  Policy Measures Announced in the Review :


* Statutory Liquidity Ratio (SLR) cut by 1%.   Thus, SLR will be now  23% wef  beginning fortnight August 11, 2012

* Repo rate and Reverse Repo Rate remains  unchanged at 8% and 7% respectively

* Cash Reserve Ratio (CRR) to  stays at 4.5%



(B) Policy Stance of Reserve Bank of India :


* Primary focus of monetary policy remains inflation control.

* Lowering policy rates now would only aggravate inflationary impulses without necessarily stimulating growth.

* Decline in non-food manufactured inflation not commensurate with growth moderation.

* Will respond to liquidity pressures including by way of open market operations.





* Baseline GDP growth forecast for 2012-13 lowered to 6.50% from 7.30%.

* Baseline wholesale price index inflation projection raised to 7.00% from 6.50%



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(D ) Inflation Stance


* Conduct of monetary policy will continue to condition and contain perception of inflation in the range of 4.0-4.5 per cent.

* Challenge for monetary policy is to maintain its priority of containing inflation and lowering inflation expectations.

* Deficient and uneven monsoon performance till date is likely to have an adverse impact on food inflation.   Further pressure on non-food manufactured products inflation cannot be ruled out.

* The prices of crude oils are uncertain.  The reversal in crude oil prices in recent weeks may add to domestic inflationary pressure.  Prices of food items and other commodities too remain a matter of concern.

* Input price pressures due to exchange rate movements and infrastructure bottlenecks in coal, minerals and power may push up non-food manufactured products inflation.

* While growth has slowed down significantly, inflation remains well above comfort zone. 

* Wage inflation in rural and urban areas remains relatively high.





* Large twin deficits pose significant risks to macroeconomic stability.

* Situation in the Euro area continues to cause concern and thus risks of potentially large negative spillovers from US, and euro area, have increased.

* External risks to the outlook for the Indian economy are intensifying.

* Agricultural production could be hit if the rainfall deficiency continues..

* Reminded government about need for immediate action on fuel, fertilizer subsidies to meet the target of restricting the subsidy.

* Data for industrial activity in Apr-May suggests that industrial production, despite some recovery, remains weak.

* M3 growth projection for 2012-13 has been retained at 15 per cent and the growth in non-food credit of scheduled commercial banks at 17 per cent.


Next Reviews :


* Mid quarter review of Monetary policy will be on 17th September, 2012

* Second Quarter Policy Review will be on 30th October, 2012





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