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Dr. D. Subbarao in statement on the Monetary Policy issued on 18th June, 2012 , has announced the following
(A) POLICY MEASURES:
* No change in Repo Rate, and it to remain at 8.00 percent;
* No change in Reverse repo and it ro remain at 7.00 percent
* No change in Bank Rate and MSF and these to remain at 9.00 percent
* Cash Reserve Ratio ( CRR ) too remains unchanged at 4.75% . Similarly SLR remains unchanged at 24%
(B) Overview of current economic scenario:
* Global Macroeconomic and financial conditins have deteriorated since last Monetary policy statement in April 2012
* Headline inflation remains above levels. Even real inflation is also on an uptrend
* RBI had frontloaded policy reduction in April with a cut of 50 bps on certain premises but there is slow down in activity, particulrly in investment, with the role of interest rates being relatively small.
* Any further cut at this stage in policy interest rates is likely to exacerbate inflationary pressures
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(C )Global Economy
* Euro area sovereign debt problem is continued to weight on global recovery. There is still vulnerability of the banking sector owing to sovereign debt problems
(D) Domestic Economy:
* Economic activity has moderated in 2011-12 and growth has slumped to 5.3% in Q4 (For the whole year it was 6.5%)
* The assessment indicates that factors other than interest rates are more responsible for growth slowdown
* The rupee depreciation has increased the competitiveness of domestic producers over foreign products and thus should result in higher exports and reduced imports. Thus acting as a demand stimulus.
(E) Inflation :
* Headline WPI inflation rate has moderated from a peak of 10% in September, 2011 to 7.7% in March 2012. But in May 2012 it has again gone upto to 7.6%, driven by food and fuel prices
* International crude prices have fallen significantly from April 2012 levels, but rupee depreciation has offset its impact on wholesale prices.
* CPI inflation rose from 8.8% in February to 9.4% in March and further to 10.4% in April 2012. Thus, wholesale price inflation has not transmitted to retail level.
Liquidity Conditions :
* This remains stable on account of various measures taken by RBI
* Management of liquidity remains a priority.